HE  RELATION  OF 
GOVERNMENT 
O  PROPERTY  AND 
INDUSTRY 


RTH 


s-zri 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


•Sf  8-  > 


READINGS  ON  THE 
RELATION  OF  GOVERNMENT 
TO  PROPERTY  AND  INDUSTRY 


COMPILED  BY 

SAMUEL  p.  ORTH 

PROFESSOR  OF  POLITICAL   SCIENCE   IN   CORNELL  UNIVERSITY 
AUTHOR  OF  "socialism    AND   DEMOCRACY   IN   EUROPE,"  ETC. 


3^nt 


GINN  AND  COMPANY 

BOSTON     •     NEW  YORK     •     CHICAGO     •     LONDON 
ATLANTA     •     DALLAS     •     COLUMHUS     •     SAN   I'KANCISCO 


COPYRIGHT,  1915,  BY 
SAMUEL  P.  ORTH 


ALL    RIGHTS    RESERVED 
215.10 


Cbe    gtftenaum    jPrtgg 

GINN   AM)  CliMPANV-  PRO- 
PRIETORS •  BOSTON  •  U.S.A. 


^ 


PREFACE 


This  volume  has  been  prepared,  primarily,  for  use  in  a  class  studying 
the  relations  of  government  to  industry,  a  subject  just  now  in  that  eager 
ferment  through  which  all  important  issues  pass  before  reaching  even  a 
temporary  equilibrium. 

We  are  in  the  midst  of  swift  changes  affecting  business  and  property, 
changes  that  touch  the  daily  activities  of  everyone  at  the  bread-and- 
butter  point.  We  cannot  be  said  to  have  reached  a  fixed  policy.  Even 
the  courts,  those  sanctuaries  of  stability,  are  groping  their  way  along  the 
new  paths  of  "  police  power "  and  are  attempting  the  difficult  task  of 
reconciling  our  constitutional  traditions  with  new  administrative  functions. 

There  can  be,  therefore,  very  little  permanent  literature  upon  so  shift- 
ing a  subject.  But  there  is  a  vast  amount  of  current  literature,  and  this 
volume  attempts  to  bring  together  some  of  the  most  significant  of  these 
current  discussions. 

Inasmuch  as  the  question  of  the  relation  of  government  to  business 
and  property  is  principally  one  of  constitutional  and  legal  relations,  the 
articles  here  reprinted  are  largely  of  a  legal  nature,  and  most  of  them 
have  been  taken  from  a  source  heretofore  almost  entirely  neglected  by 
the  lay  student,  the  law  journals,  repositories  of  much  careful  research 
and  concise  thinking  on  this  subject. 

While  attempting  to  avoid  controversial  material,  it  has  been  necessary 
to  present  various  phases  of  issues  still  in  the  propagandist  stage. 

The  arrangement  of  the  material  has  followed  a  seemingly  natural 
sequence.  One  necessarily  begins  with  the  presentation  of  the  changing 
conceptions  of  property  obligations  and  of  governmental  functions ;  this 
leads  to  a  discussion  of  the  expanding  police  power,  as  sanctioned  by 
state  and  federal  courts.  The  problem  of  the  control  of  corporations, 
the  financial  enginery  of  all  our  important  industries  to-day,  directs  one's 
attention  to  the  organization,  functions,  and  powers  of  commissions  —  the 
device  we  have  adopted  for  making  governmental  regulation  of  public 
utilities  effective.  The  development  of  labor  laws  further  affects  pro- 
foundly our  ideas  of  property  obligations  and  the  functions,  of  govern- 
ment. Perhaps  we  should  expect  that  all  these  tendencies  lead  to  the 
^entralization  of  federal  control  over  state  business.  The  new  amend- 
ments to  the  Anti-trust  Law  and  the  new  Federal  Trade  Commission 
Act  are  at  present  the  apex  of  this  centralization.  From  the  testimony 
taken  before  the  Senate  committee,  in  the  investigation  which  was  a 


iv  PREFACE 

prelude  to  the  framing  and  passing  of  these  laws,  excerpts  are  reproduced, 
reflecting  the  varying  opinions  of  diverse  authorities  on  this  subject. 

It  is  not  an  easy  task  to  compile  such  a  volume.  There  are  not  merely 
the  difficulties  of  the  selective  process  ;  one  has  also  the  ever-present  con- 
sciousness that  he  is  dealing  with  other  men's  opinions  —  manhandling 
viewpoints  and  jostling  them  together  into  a  juxtaposition  for  which  they 
were  never  designed.  In  this  instance,  the  task  has  been  greatly  light- 
ened by  the  cordial  permission  of  the  authors  to  reprint  their  articles  or 
portions  of  their  books,  and  the  liberal  consent  of  the  journals  and  pub- 
lishers who  hold  the  copyrights.^ 

To  all  these  —  authors,  editors,  and  publishers  —  I  wish  to  express  my 
heartiest  thanks ;  and  also  to  my  colleagues.  Professor  Walter  F.  Willcox 
and  Professor  A.  A.  Young,  for  their  helpful  suggestions  and  painstaking 
assistance. 

S.  P.  O. 

1  The  material  taken  from  magazines  and  books  is  copyrighted  by  the  pub- 
lishers thereof,  and  all  rights  are  reserved  to  the  owners  of  the  copyrights. 


CONTENTS 


PAGE 

I.    The  Changing  Conceptions  of  Property  and  the  Functions  of 
Government 

The  Constitutional  Position  of  Property  in  America.    By  President 

Arthur  Twining  Hadley.      The  Independent,  April  i6,  1908     .         1 

Confusion  of  Property  with  Privilege  :  the  Dartmouth  College 
Case.  By  Jesse  F.  Orton.  The  Independent,  August  19  and 
26,  1909  ..........         7 

The  Renewed  Extension  of  Government  Control  of  Economic 
Life.  By  David  Kinley.  American  Economic  Review,  Supple- 
ment, March,  1914  ........       25 

Business  Enterprise   and   the  Law.     By  Gilbert   H.   Montague. 

North  American  Review,  November,  1910        ....       38 

II.    The    Response   of    Legislatures   and    Coxjrts   to   the    Newer 
Demands 

American  Legislation  on  Property  Rights.     From  "Popular  Law 

Making."     By  Frederic  Jesup  Stimson 49 

The  Courts  and  Property.  By  Charles  F.  Emerick.  Popular  Sci- 
ence Monthly,  April  and  May,  1914         .....       73 

Law  in  Books  and  Law  in  Action.     By  Roscoe  Pound.     American 

Law  Review',  January,  1910     .         .         .  .         .         .84 

III.     The  Police  Power 

WTiat  is  the  Police  Power?  By  W.  W.  Cook,  Columbia  Law  Re- 
view'.    Maj',  1907 103 

The  Police  Power,  a  Product  of  the  Rule  of  Reason.     By  George 

W.  Wickersham.     Harvard  Law  Review,  Ynhmviry,  iqi^         .     113 

State    Police    Powers   and   Federal   Property    Guarantees.       By 

Charles  C.  Marshall.     Columbia  La-w  Review,  March,  1914     .     128 

The  United  States  Supreme  Court  and  Police  Power,  a.  Progres- 
siveness  of  the  Supreme  Court,  137  ;  b.  Supreme  Court  a  Bul- 
wark of  the  State  Police  Power,  153.  By  Charles  Warren. 
Columbia  Law  Review,  April  and  December,  191 3. 

V 


vi  CONTENTS 

PAGE 

IV.     Corporations 

A.     Some  Problems  pertaining  to  Corporations 

Abuse  of  Corporate  Charter.     By  D.  E.  Mowry.     Central 

Law  Journal,  JanuRiy,  igo7  .         .         .         .         .         -179 

Uniform  Corporations  Laws.     By  Franklin  A.  Wagner.    A^'eio 

York  Law  Journal,  ]u\y  2g,  igog    .....     184 

Government  Regulation  of  Security  Issues.     By  A.  U.  Ayres. 

Political  Science  Quarterly,  December,  1913     .         .         .     191 

Interlocking  Corporations.  By  Harold  M.  Bowman.  Michi- 
gan Law  Review,  February,  1913     .....     197 

B.     Federal  Control 

Power  of  Congress  to  Enact  Incorporation  Laws,  and  Laws 
to  Regulate  Corporations.  By  Victor  Morawetz.  Har- 
vard Law  Journal,  June,  1913  .....     208 

C     Monopolies 

The  Case  of  the  Monopolies.     By  S.  T.  Miller.     Michigan 

Law  Review,  1907   .         .         .         .         .         .         .         .221 

The  Standard  Oil  Decision  and  the  Rule  of  Reason.     By 

H.  L.  Wilgus.     Michigan  Law  Review,  June,  191 1  .         .     243 

The  Law  of  Combined  Action  or  Possession.     By  Frederic 

Jesup  Stimson.     American  Law  Review,  ]a.nn&Ty,  igii  .     267 

D.     Public  Utilities :  Property  affected  with  a  Public  Interest 

State  Control  of  Public  Utilities.  By  Bruce  Wyman.  Har- 
vard Law  Review,  ]une,  igii  ......     284 

Anthracite  Coal  Industry  as  a  Business  Affected  with  a  Pub- 
lic Interest.  By  A.  A.  Bruce.  Michigan  Law  Review, 
June,  1909 293 

V.     Commissions  and  Boards 

A.     Establishment  of  Commissions 

Commission  Regulation  of  Public  Utilities :  A  Survey  of 
Legislation.  By  J.  Leo  Sharfman.  Annals  American 
Academy  of  Political  and  Social  Science,  May,  19 14         .     308 

A  Government  of  Law  as  Distinguished  from  a  Government 
of  Functionaries.  By  Hannis  Taylor.  Green  Bag,  Sep- 
tember, 1906  ........     324 

Regulation  by  Commission.  By  S.  O.  Dunn.  North  Ameri- 
can Review,  February,  1914 332 


CONTENTS  vii 


PAGE 


B.  Some  Problems  of  Commissions 

Some  Features  of  State  Regulation  of  Public  Utilities.     By 

John  H.  Roemer,  Wisconsin  Bar  Association  .         .     344 

Factors  Determining  a  Reasonable  Charge  for  Public  Utility 
Service.  By  M.  E.  Cooley.  Journal  of  Wesleni  Society 
of  Engineers,  January,  1914 362 

C.  Powers  and  Duties  of  Commissions 

A   Word   about   Commissions.     By   Herbert   J.   Friedman. 

Harvard  Laiu  Review,  June,  igi 2     .         .         .         .         .378 

Conclusiveness  of  Administrative  Determination  in  the  Fed- 
eral Government.  By  T.  R.  Powell.  Political  Science 
Review,  August,  1907       .......     387 

Methods  of  Judicial  Review  in  Relation  to  the  Efifective- 
ness  of  Commission  Control.  By  O.  L.  Pond.  Annals 
American  Academy  of  Political  and  Social  Science,  May, 
1914 394 

Judicial  Review  of  Public  Regulation.     By  Milo  R.  Maltbie. 

Journal  of  Political  Economy,  May,  igi2         .         .         .     403 

VI.     Labor  Laws  and  the  Labor  Contract 
^.     Labor  Laws 

Progressive  Tendencies  in  Labor  Law  Administration  in 
America.  By  John  B.  Andrews.  American  Labor  Legis- 
lation Review,  December,  1913         .....     413 

Constitutional  Limitations  and  Labor  Legislation.  By  Ernst 
Freund.  American  Labor  Legislation  Revieia,  December, 
1909 418 

The  Legal  Minimum  Wage  in  the  United  States.     By  A.  N. 

Holcombe.     American  Economic  Review,  March,  igi2    .     430 

B.  Employers'  Liability  and  Workmen's  Compensation 

Employers'  Liability  and  Workmen's  Compensation  Laws. 
By  J.  Walter  Lord,  Maryland  Bar  Association,  July, 
1912 445 

Report  of  New  Jersey  Commission  on  Employers'  Liability, 

1911 462 

Constructive  Investigation  and  the  Industrial  Commission 
of  Wisconsin.  By  J.  R.  Commons.  The  Survey,  Jan- 
uary 4,  1913        .         .  467 

C.  Labor  Unions 

Law  of  Boycott.     By  Harry  W.  Laidler,  from  "Boycotts 

and  the  Labor  Struggle  " 485 


vm 


CONTENTS 


VII.    Tendencies    toward    Federal    Control    of    Commerce    and 
Industry 

Constitutional  Aspects  of  Federal  Regulation  of  Business.     By 

J.  P.  Hall.     Journal  of  Political  Economy,  May,  igi2  .         .     498 

Constitutionality    of    Government    Aid.     By    F.    J.    Goodnow 

Chap.  VII  of  "  Social  Reform  and  the  Constitution  "  .     503 

The  Regulation  of  Railway  Rates  under  the  Fourteenth  Amend- 
ment. By  J.  F.  Swayze.  Quarterly  Journal  of  Economics, 
May,  1912 525 

Power  of  Congress  over  Manufacture  and  Production.  By 
Thomas  H.  Calvert,  from  "Regulation  of  Commerce  under 
the  Federal  Constitution "    .         .         .         .         .         .         -547 

Federal  Usurpation.  By  Franklin  Pierce,  from  "Federal  Usur- 
pation"          551 


VIII.  Excerpts  from  Testimony  given  at  the  Hearings  before  the 
Committee  on  Interstate  Commerce  of  United  States 
Senate,  investigating  the  Desirability  of  changing 
the  Laws  regulating  and  controlling  Corporations, 
Persons  and  Firms  engaged  in  Interstate  Commerce, 
1912 

Letter  of  Herbert  Knox  Smith 
From  testimony  of  Taylor  Vinson 
Letter  of  H.  R.  Towne 
From  testimony  of  E.  H.  Gary    . 
From  testimony  of  J.  R.  Morehead 
From  testimony  of  F.  L.  Stetson 
From  testimony  of  Louis  D.  Brandeis 
From  testimony  of  Samuel  Gompers 
From  testimony  of  James  A.  Emery 
From  testimony  of  T.  J.  Brooks  . 


568 
574 
576 
580 
589 
594 
602 
608 
614 
623 


IX.     Recent  Federal  Legislation  pertaining  to  Federal  Control 
OF  Industry 

Federal  Trade  Commission  Act 635 

Amendments  to  x\nti-Trust  Law 644 

INDEX 659 


I 

THE  CHANGING  CONCEPTIONS  OF  PROPERTY 
AND  THE  FUNCTIONS  OF  GOVERNMENT 

THE    CONSTITUTIONAL   POSITION    OF   PROPERTY   IN 

AMERICA 

By  Arthur  T\m:ning  Hadley,  President  of  Yale  University 

(From  the  Independent,  April  i6,  1908) 

The  basis  of  the  expansion  of  governmental  functions  in  relation  to 
industry  and  property  is  the  changing  opinion  regarding  property  obligations 
and  vested  rights.  The  statement  by  President  Hadley  may  well  be  called 
the  classic  pronouncement  upon  this  subject.  —  Editor's  Note. 

European  observers  who  study  either  the  specific  industrial  ques- 
tions which  have  come  before  the  American  people  for  their  solution, 
or  the  general  relation  between  the  industrial  activity  of  the  Govern- 
ment and  that  of  private  individuals,  are  surprised  at  a  certain  weak- 
ness of  public  action  in  all  these  matters.  ,  Our  legislatures  are  often 
ready  to  pass  drastic  measures  of  regulation  ;  they  are  rarely  willing 
to  pursue  a  consistent  and  carefully  developed  policy  for  the  attain- 
ment of  an  industrial  end.  The  people  often  declaim  against  the  ex- 
tent of  the  powers  of  private  capital ;  they  are  seldom  willing  to  put 
that  capital  under  the  direct  management  of  the  government  itself. 
The  man  who  talks  loudest  of  the  abuses  of  pri\'ate  railroad  manage- 
ment shrinks  from  the  alternative  of  putting  railroads  into  the  direct 
control  and  ownership  of  the  State. 

The  fact  is,  that  private  property  in  the  United  States,  in  spite  of 
all  the  dangers  of  unintelligent  legislation,  is  constitutionally  in  a 
stronger  position,  as  against  the  Government  and  the  Government 
authority,  than  is  the  case  in  any  country  of  Europe.  However  much 
public  feeling  may  at  times  move  in  the  direction  of  socialistic  measures, 
there  is  no  nation  which  by  its  constitution  is  so  far  removed  from 


2   THE  CHANGING  CONCEPTIONS  OF  PROPERTY 

socialism  or  from  a  socialistic  order.  This  is  partly  because  the  gov- 
ernmental means  provided  for  the  control  or  limitation  of  private 
propeity  are  weaker  in  America  than  elsewhere,  but  chiefly  because 
the  rights  of  private  property  are  more  formally  established  in  the 
Constitution  itself. 

This  may  seem  a  startling  proposition ;  but  I  think  a  very  brief 
glance  at  the  known  facts  of  history  will  be  sufficient  to  support  and 
sustain  it.  For  property  in  the  modern  sense  was  a  comparatively 
recent  development  in  the  public  law  of  European  communities.  In 
the  United  States,  on  the  contrary,  property  in  the  modern  sense 
represents  the  basis  on  which  the  whole  social  order  was  established 
and  built  up. 

Down  to  about  the  thirteenth  century  the  system  of  land  tenure 
in  every  country  of  Europe  was  a  feudal  one.  It  was  based  upon 
military  service.  A  man  held  a  larger  or  smaller  amount  of  land  on 
account  of  his  larger  or  smaller  amount  of  fighting  efficiency.  There 
were  many  rival  claimants  for  the  land.  The  majority  of  those  who 
wanted  to  cultivate  the  soil  were  unable  to  protect  themselves  against 
the  dangers  of  war.  In  the  absence  of  an  efficient  protector  or  over- 
lord no  amount  of  industry  was  effective  and  no  large  accumulation 
of  capital  was  possible.  The  services  of  the  military  chief  were  in- 
dispensable as  a  basis  for  the  toil  of  the  laborer  or  the  forethought  of 
the  capitalist.  It  was  the  military  chief,  therefore,  who  enjoyed  not 
only  the  largest  measure  of  respect,  but  the  strongest  position  under 
the  law.  As  the  conditions  of  public  security  grew  better  these  things 
changed.  From  the  fourteenth  century  to  the  nineteenth  Europe 
has  witnessed  the  gradual  substitution  of  industrial  tenures  for  mili- 
tary tenures,  the  gradual  development  of  a  system  of  property  law 
intended  to  encourage  the  activities  of  the  laborers  and  the  capital- 
ists, rather  than  to  reward  the  services  of  the  successful  military  chief- 
tain. But  down  to  the  end  of  the  eighteenth  century  this  new  sort 
of  private  property  represented  a  superadded  element  rather  than  an 
integral  basis  of  the  constitution  of  society.  And  even  the  develop- 
ments of  the  last  hundred  years  in  constitutional  law  and  industrial 
activity  have  not  been  able  to  obliterate  a  certain  sense  of  newness 
when  we  contrast  the  position  of  the  aristocracy  of  wealth  with  that  of 
the  aristocracy  of  military  rank. 

In  the  American  colonies,  on  the  other  hand,  where  the  public  law 
of  the  United  States  first  took  its  rise,  conditions  were  w^holly  different. 
People  wanted  no  military  chieftain  to  protect  them,  no  overlord  to 
rule  them.  Each  man  was  familiar  with  the  use  of  a  gun  —  how 
familiar,  the  overwhelming  losses  of  the  British  troops  in  the  Revolu- 
tionary War,  when  brought  face  to  face  with  untrained  farmers,  tes- 
tify very  clearly  —  and  was  ready  to  take  his  share  in  protecting  the 
community  against  the  attacks  of  the  Indians  or  their  French  leaders. 


AND  THE  FUNCTIONS  OF  GOVERNMENT     3 

There  was  plenty  of  land  for  all  —  plenty  of  opportunity  for  the  exer- 
cise of  labor  and  the  use  of  capital.  That  man  did  the  most  for  society 
who  vvorked  hardest  and  saved  most.  Under  such  circumstances  the 
laws  were  so  framed  and  interpreted  as  to  give  the  maximum  stimulus 
to  labor  and  the  maximum  rights  to  capital.  There  was  no  military 
aristocracy  which  stood  in  the  way.  Governors  were  at  times  sent 
over  from  England  who  tried  their  best  to  assert  Crown  rights  for 
themselves  and  their  subordinates.  But  the  net  effect  of  the  activity 
of  these  governors  was  probably  to  weaken  rather  than  to  strengthen 
the  claims  of  feudal  authority,  because  they  made  themselves  so  un- 
popular that  they  united  the  spirit  of  the  colonists  in  their  resistance 
to  all  such  claims  and  pretensions. 

At  the  time,  therefore,  when  the  United  States  separated  from  Eng- 
land, respect  for  industrial  property  right  was  a  fundamental  prin- 
ciple in  the  law  and  public  opinion  of  the  land.  It  was  natural  enough 
that  this  should  be  so  at  a  period  when  every  man  either  held  prop- 
erty or  hoped  to  do  so.  The  strange  thing  is  that  this  principle 
should  have  survived  with  so  little  change  down  to  the  present  day. 
But  there  were  certain  circumstances  connected  with  the  adoption  of 
the  Constitution  of  the  United  States  which  provided  for  the  per- 
petuation of  tliis  state  of  things  —  which  made  it  difficult  for  public 
opinion  in  another  and  later  age,  when  property  holding  was  less 
widely  distributed,  to  alter  the  legal  conditions  of  the  earlier  period. 

During  the  War  of  the  Revolution,  from  1775  to  1782,  and  in  the 
years  immediately  thereafter,  the  American  Union  had  been  a  league 
of  independent  States,  and  a  very  loose  one.  They  had  formed  an 
organization  for  mutual  protection  in  carrying  on  the  war.  But  this 
organization,  even  while  the  war  lasted,  was  very  weak  indeed.  The 
imminence  of  a  common  danger,  which  threatened  to  involve  all,  and 
the  personality  of  a  few  leaders,  of  whom  George  Washington  was  the 
most  conspicuous,  were  the  only  things  that  enabled  the  different 
colonies  to  act  together.  When  independence  was  conceded  by  Eng- 
land in  1782,  and  the  restraints  of  common  danger  were  removed,  the 
hopeless  weakness  of  the  central  government  became  obvious.  From 
1783  to  1789  the  United  States  had  no  means  of  securing  concert  of 
action  at  home  or  respect  and  consideration  abroad.  Clear-headed 
men  felt  the  absolute  necessity  of  centralization.  The  Constitution 
of  1788  was  the  result  of  a  set  of  contracts,  agreements,  and  compro- 
mises between  two  pretty  evenly  balanced  parties  —  a  States  rights 
party,  which  wished  to  limit  the  powers  of  the  Federal  Government, 
and  a  national  party,  which  was  anxious  to  set  some  practical  control 
on  the  autonomy  of  the  State  government. 

The  delegates  to  the  convention  of  1787  were  concerned  with 
questions  of  constitutional  law  in  the  narrower  sense.  They  were  not 
thinking  of  the  legal  position  of  private  proverty.     But  it  so  happened 


4         THE   CHANGING   CONCEPTION  OF   PROPERTY 

that  in  making  mutual  limitations  upon  the  powers  of  the  Federal 
and  the  State  government  they  unwittingly  incorporated  into  the  Con- 
stitution itself  certain  very  extraordinary  immunities  to  the  property 
holders  as  a  body. 

It  was  in  the  first  place  provided  that  there  should  be  no  taking 
of  private  property  without  due  process  of  law.  The  States  Rights 
men  feared  that  the  Federal  Government  might,  under  the  stress  of 
military  necessity,  pursue  an  arbitrary  policy  of  confiscation.  The 
Federalists,  or  national  party,  feared  that  under  the  influence  of  sec- 
tional jealousy  one  or  more  of  the  States  might  pursue  the  same  policy. 
This  constitutional  provision  prevented  the  legislature  or  executive, 
either  of  the  nation  or  of  the  individual  States  from  taking  property 
without  judicial  inquiry  as  to  the  necessity,  and  without  making  full 
compensation  even  in  case  the  result  of  such  inquiry  was  favorable  to 
the  government.  No  man  foresaw  the  subsequent  effect  of  this  pro- 
vision in  preventing  a  majority  of  voters,  acting  in  the  legislature  or 
through  the  executive,  from  disturbing  existing  arrangements  with 
regard  to  railroad  building  or  factory  operation  until  the  railroad  stock- 
holders or  factory  owners  had  had  the  opportunity  to  have  their  case 
tried  in  the  courts. 

There  was  another  equally  important  clause  in  the  Constitution 
providing  that  no  State  should  pass  a  law  impairing  the  obligation  of 
contracts.  In  this'case  also  a  provision  which  was  at  first  intended  to 
prevent  sectional  strife  and  to  protect  the  people  of  one  locality  against 
arbitrary  legislation  in  another  became  a  means  of  strengthening 
vested  rights  as  a  whole  against  the  possibility  of  legislative  or  execu- 
tive interference.  Nor  was  the  direct  effect  of  these  two  clauses  in 
preventing  specific  acts  on  the  part  of  the  legislature  the  most  impor- 
tant result  of  their  existence.  They  were  a  powerful  means  of  estab- 
lishing the  American  courts  in  that  position  of  supremacy  which  they 
enjoy  under  the  Constitution.  For  whenever  an  act  of  the  legislature 
or  the  executive  violated,  or  even  seemed  to  violate,  one  of  these 
clauses,  it  came  before  the  courts  for  review.  If  the  Federal  courts 
said  that  the  act  of  a  legislature  violated  one  of  these  provisions  it  was 
blocked- —  rendered  powerless  by  a  dictum  of  the  judges.  I  do  not 
mean  that  these  two  clauses  in  the  Constitution  were  the  chief  source 
of  judicial  power.  That  power  has  been  due  primarily  to  the  tradi- 
tional respect  for  the  judicial  office  exsting  in  the  United  States,  which 
has  rendered  it  almost  impossible  for  any  but  men  of  learning  and 
character  to  aspire  to  it,  and,  secondarily,  to  the  very  great  ability 
that  certain  of  the  early  American  judges  —  notably  Marshall,  Story 
and  Kent  —  showed  in  expounding  the  law  in  such  manner  as  to  com- 
mand universal  approval.  But  if  these  provisions  did  not  lie  at  the 
foundation  of  the  positive  authority  of  the  judges,  they  were  un- 
questionably a  most  powerful  instrument  in  practically  limiting  the 


AND  THE  FUNCTIONS  OF  GOVERNMENT     5 

authority  of  legislatures,  and  to  that  extent  in  strengthening  the  rights 
of  the  property  holders. 

The  rights  of  individual  owners  against  legislative  interference  were 
thus  most  fully  protected.  But  how  was  it  when  property  was  in  the 
hands  of  corporations? 

Here  also  the  power  of  control  by  the  Government  was  weakened 
and  the  rights  and  immunities  of  the  property  holders  correspondingly 
strengthened  by  two  events,  whose  effect  upon  the  modern  industrial 
situation  may  be  fairly  characterized  as  fortuitous.  One  of  these  was 
the  decision  of  the  celebrated  Dartmouth  College  cause  in  1819; 
the  other  was  the  passage  of  the  Fourteenth  Amendment  to  the  Con- 
stitution of  the  United  States  in  1868. 

I  call  their  effect  fortuitous,  because  neither  the  judges  who  decided 
the  Dartmouth  College  case  nor  the  legislators  who  passed  the  Four- 
teenth Amendment  had  any  idea  how  these  things  would  affect  the 
modern  industrial  situation.  The  Dartmouth  College  case  dealt  with 
an  educational  institution  not  with  an  industrial  enterprise.  The 
Fourteenth  Amendment  was  framed  to  protect  the  negroes  from  op- 
pression by  the  whites,  not  to  protect  corporations  from  oppression  by 
the  legislature.  It  is  doubtful  whether  a  single  one  of  the  members 
of  Congress  who  voted  for  it  had  any  idea  that  it  would  touch  the 
cjuestion  of  corporate  regulation  at  all.  Yet  the  two  together  have 
had  the  effect  of  placing  the  modern  industrial  corporation  in  an  al- 
most impregnable  constitutional  position. 

In  1816  the  New  Hampshire  Legislature  attempted  to  take  away  the 
charter  rights  of  Dartmouth  College.  Daniel  Webster  was  employed 
by  the  college  in  its  defense,  and  his  reasoning  so  impressed  the  court 
that  they  committed  themselves  to  the  position  that  a  charter  was  a 
contract ;  that  a  State,  having  induced  people  to  invest  money  by 
certain  privileges  and  immunities,  could  not  at  will  modify  those  priv- 
ileges and  immunities  thus  granted.  Whether  the  court  would  have 
taken  so  broad  a  position  if  the  matter  had  come  before  it  thirty  or 
forty  years  later,  when  the  abuses  of  ill-judged  industrial  charters 
had  become  more  fully  manifest,  is  not  sure ;  but,  having  once  taken 
this  position  and  maintained  it  in  a  series  of  decisions,  the  court  could 
not  well  recede  from  it.  Inasmuch  as  many  of  the  corporate  charters 
granted  by  State  legislation  had  an  unlimited  period  to  run,  the  theory 
that  these  instruments  were  contracts  binding  the  State  for  all  time 
had  a  very  important  bearing  in  limiting  the  field  within  which  a 
legislature  could  regulate  the  activity  of  such  a  body,  or  an  executive 
interfere  with  it. 

Again,  by  the  Fourteenth  Amendment  to  the  Constitution  of  the 
United  States  every  State  was  forbidden  to  interfere  with  the  civil 
rights  of  any  person  or  to  treat  different  persons  in  an  uneciual  way. 
This  amendment  to  the  Constitution,  passed  just  after  the  close  of  the 


6        THE   CHANGING   CONCEPTION  OF   PROPERTY 

Civil  War,  was  intended  to  prevent  the  Southern  States  readmitted, 
or  on  the  point  of  being  readmitted,  to  the  Union  from  abridging  the 
rights  of  the  negro  members  of  the  commonwealth.  A  number  of  years 
elapsed  before  the  effect  of  this  amendment  upon  the  constitutional 
position  of  railroad  and  industrial  corporations  seems  to  have  been 
fully  realized.  But  in  1882  the  Southern  Pacific  Railroad  Company, 
having  been,  as  it  conceived,  unfairly  taxed  by  the  assessors  of  a  cer- 
tain county  in  California,  took  the  position  that  a  law  of  the  State  of 
California  taxing  the  property  of  a  corporation  at  a  different  rate 
from  that  under  which  similar  property  of  an  indi\'idual  would  be 
taxed  was  in  effect  a  violation  of  the  Fourteenth  Amendment  to  the 
Constitution,  because  a  corporation  was  a  person  and  therefore  en- 
titled to  equal  treatment.  This  view,  after  careful  consideration,  was 
upheld  by  the  Federal  courts.  A  corporation,  therefore,  under  the 
law  of  the  United  States,  is  entitled  to  the  same  immunities  as  any 
other  person ;  and,  since  the  charter  creating  it  is  a  contract,  whose 
obligation  cannot  be  impaired  by  the  one-sided  act  of  the  legislature, 
its  constitutional  position  as  a  property  holder  is  much  stronger  than 
anywhere  in  Europe. 

Under  these  circumstances,  it  is  evident  that  large  powers  and 
privileges  have  been  constitutionally  delegated  to  private  property  in 
general  and  to  corporate  property  in  particular.  I  do  not  mean  that 
property  owners,  and  specifically  the  owners  of  corporate  property, 
have  more  practical  freedom  from  interference  in  the  United  States 
than  they  do  in  some  other  countries,  notably  in  England.  Probably 
they  do  not  have  as  much.  But  their  theoretical  position  —  the  sum 
of  the  conditions  which  affect  their  standing  for  the  long  future  and 
not  for  the  immediate  present  —  is  far  stronger  in  the  United  States. 
The  general  status  of  the  property  owner  under  the  law  cannot  be 
changed  by  the  action  of  the  legislature  or  the  executive,  or  the  people 
of  a  State  voting  at  the  polls,  or  all  three  put  together.  It  cannot  be 
changed  without  either  a  consensus  of  opinion  among  the  judges, 
which  should  lead  them  to  retrace  their  old  views,  or  an  amendment 
of  the  Constitution  of  the  United  States  by  the  slow  and  cumbersome 
machinery  provided  for  that  purpose,  or,  last  —  and  I  hope  most  im- 
probable —  a  revolution. 

When  it  is  said,  as  it  commonly  is,  that  the  fundamental  division  of 
powers  in  the  modern  State  is  into  legislative,  executive  and  judicial, 
the  student  of  American  institutions  may  fairly  note  an  exception. 
The  fundamental  division  of  powers  in  the  Constitution  of  the  United 
States  is  between  voters  on  the  one  hand  and  property  owners  on  the 
other.  The  forces  of  democracy  on  one  side,  divided  between  the 
executive  and  the  legislature,  are  set  over  against  the  forces  of  property 
on  the  other  side,  with  the  judiciary  as  arbiter  between  them ;  the 
Constitution  itself  not  only  forbidding  the  legislature  and  executive 


AND  THE  FUNCTIONS  OF  GOVERNMENT     7 

to  trench  upon  the  rights  of  property,  but  compelling  the  judiciary 
to  define  and  uphold  those  rights  in  a  manner  provided  by  the  Constitu- 
tion itself. 

This  theory  of  American  politics  has  not  often  been  stated.  But 
it  has  been  universally  acted  upon.  One  reason  why  it  has  not  been 
more  frequently  stated  is  that  it  has  been  acted  upon  so  universally 
that  no  American  of  earlier  generations  ever  thought  it  necessary  to 
state  it.  It  has  had  the  most  fundamental  and  far-reaching  effects 
upon  the  policy  of  the  country.  To  mention  but  one  thing  among 
many,  it  has  allowed  the  experiment  of  universal  suffrage  to  be  tried 
under  conditions  essentially  different  from  those  which  led  to  its 
ruin  in  Athens  or  in  Rome.  The  voter  was  omnipotent  —  within  a 
limited  area.  He  could  make  what  laws  he  pleased,  as  long  as  those 
laws  did  not  trench  upon  property  right.  He  could  elect  what  officers 
he  pleased,  as  long  as  those  officers  did  not  try  to  do  certain  duties 
confided  by  the  Constitution  to  the  property  holders.  Democracy 
was  complete  as  far  as  it  went,  but  constitutionally  it  was  bound  to 
stop  short  of  social  democracy.  I  will  not  go  so  far  as  to  say  that 
this  set  of  limitations  on  the  political  power  of  the  majority  in  favor  of 
the  political  power  of  the  property  owner  has  been  a  necessary  element 
in  the  success  of  universal  suffrage  in  the  United  States.  I  will  say 
unhesitatingly  that  it  has  been  a  decisive  factor  in  determining  the 
political  character  of  the  nation  and  the  actual  development  of  its 
industries  and  institutions. 


CONFUSION    OF    PROPERTY    WITH    PRIVILEGE:    DART- 
MOUTH  COLLEGE   CASE 

By  Jesse  F.  Orton  of  the  New  York  Bar 

(From   the  Independent,  August  19  and  26,  1909) 

I.   Historical 

The  Dartmouth  College  case  was  essentially  a  personal  and  political 
controversy  between  comparatively  small  factions  at  an  early  day  in 
one  of  the  smaller  states  of  the  Union.  But  it  has  made  law  in  regard 
to  the  most  solemn  and  vital  interests  of  a  great  nation  and  is  still, 
in  spite  of  strong  efforts  to  evade  its  consequences,  a  mighty  force  in 
the  economic  and  social  institutions  of  the  country.  Probably  its 
most  striking  results  were  never  dreamed  of  by  the  scheming  colleg:; 
trustees,  the  adroit  and  partisan  counsel,  or  the  justices  of  imperious 


8       THE   CHANGING   CONCEPTIONS  OF   PROPERTY 

will,  when  they  were  playing  their  evanescent  roles  and  giving  rein 
to  the  political  passions  and  prejudices  of  the  hour. 

Justice  Cole,  of  the  Iowa  supreme  court,  said  in  1874  that  "the 
practical  effect  of  the  Dartmouth  College  decision  is  to  exalt  the  rights 
of  the  few  above  those  of  the  many,"  and  that  "under  the  authority 
of  that  decision  more  monopolies  have  been  created  and  perpetuated, 
and  more  wrongs  and  outrages  upon  the  people  effected,  than  by  any 
other  single  instrumentality  in  the  government."  ^ 


The  late  George  P.  Wanty,  of  Michigan,  afterward  appointed  federal 
judge  by  President  McKinley,  said  with  reference  to  this  decision : 
"No  court  may  promulgate  a  doctrine  which  is  not  founded  in  the  good 
sense  of  the  people  and  have  it  respected."  ^ 

What  is  there  in  this  celebrated  case  to  call  forth  such  emphatic 
expressions  of  opinion  from  jurists  and  students  of  government?  It 
is  the  purpose  of  this  article  to  show  briefly  the  results  of  the  decision 
and  the  influences  which  brought  it  about.  In  the  second  article  the 
case  will  be  considered  from  the  legal  standpoint. 

The  result  of  the  Dartmouth  College  decision  has  been  the  con- 
fusion of  privilege  with  property.  Being  the  basis  of  the  doctrine  that 
a  few  lawmakers,  clothed  with  authority  for  a  day,  may  barter  away 
forever  the  sovereign  rights  and  powers  of  the  people,  it  has  proved 
a  prolific  source  of  corruption  in  legislation.  Among  the  fruits  of 
this  doctrine  are  such  privileges  as  perpetual  exemption  from  the 
common  burden  of  taxation  and  never-ending  possession  of  public 
highways  by  street  railways  and  other  corporations  run  for  private 
profit.  It  is  true  that  the  force  of  Marshall's  decision  has  been  greatly 
impaired  by  his  successors.  In  1895  Judge  Wanty  was  moved  to  say 
that  the  most  casual  observer  could  not  fail  to  see  that  its  authority 
was  "fast  passing  away."  Yet  this  alien  growth,  engrafted  upon  the 
Constitution  in  181 9,  soon  assumed  such  huge  proportions  that  its 
"passing"  was  not  the  work  of  a  year  or  a  decade.  Chief  Justices 
Taney  and  Waite  hewed  off  mighty  limbs,  but  the  gnarled  trunk 
still  stands  as  one  of  the  chief  bulwarks  of  privilege. 

The  causes  which  produced  the  Dartmouth  College  decision  have 
never  been  set  forth  in  such  form  as  to  penetrate  the  public  conscious- 
ness. It  has  been  taken  by  many,  along  with  the  Declaration  of  Inde- 
pendence and  the  Constitution,  as  the  work  of  the  fathers  of  the  re- 
public, who,  actuated  by  patriotism  and  guided  by  an  almost  divine 
inspiration,  wrought  only  for  the  future  weal  of  their  country.  In 
this  instance  the  dream  is  rudely  shattered  by  the  pick  and  shovel  of 

'  Dubuque  vs.  Railroad  Co.,  S9  Iowa  95-96. 
^Michigan  Law  Journal,  Vol.  IV,  p.  260. 


AND  THE  FUNCTIONS  OF  GOVERNMENT      9 

the  historian.  To  understand  this  decision,  we  must  dig  down  to 
its  roots. 

Dartmouth  College  was  founded  in  1769  by  a  charter  granted  by 
Governor  Wentworth,  of  New  Hampshire,  in  the  name  of  the  English 
king.  Twelve  trustees  were  named  to  have  full  control  of  the  college, 
except  that  the  first  president  was  named  in  the  charter  and  was  to 
have  the  privilege  of  appointing  his  successor.  The  first  president, 
Eleazer  Wheelock,  died  in  1779,  ha\ang  appointed  his  son,  John 
Wheelock,  to  succeed  him.  Some  years  before  iSoo,  the  Wheelock 
"dynasty"  became  distasteful  to  certain  ruling  spirits  on  the  board  of 
trustees,  and  in  1809  the  president's  enemies  secured  a  majority  of 
the  board. 

All  parties  to  the  trouble  were  originally  Federalists,  but  Wheelock 
was  a  Presbyterian,  while  his  opponents  adhered  to  Congregationalism, 
then  practically  the  established  state  church  in  New  Hampshire.  In 
181 5  there  came  a  war  of  pamphlets,  with  bitter  charges  and  counter 
charges.  Gradually  the  struggle  assumed  a  political  cast.  Wheelock 
appealed  to  the  legislature  to  investigate  and  reform  alleged  abuses  of 
management.  The  legislature,  then  a  Federalist  body,  investigated 
the  college  through  a  committee,  but  went  out  of  office  before  positive 
action  could  be  taken.  The  feeling  between  the  factions  had  now 
become  so  intense  that  the  trustees,  without  even  waiting  for  the  report 
of  the  investigating  committee,  removed  President  Wheelock  from 
office.  Thomas  W.  Thompson,  a  leading  trustee  and  strongly  hostile 
to  Wheelock,  was  then  the  most  prominent  politician  of  the  Federalist 
party  in  New  Hampshire.  The  president's  enemies  being  in  possession 
of  one  party,  his  friends  tended  to  become  identified  with  the  other ; 
and  in  this  movement  they  were  joined  by  the  opponents  of  the  estab- 
lished church.  With  these  new  elements  of  support,  the  anti- 
Federalists  in  18 1 6  elected  William  Plumer  to  the  office  of  governor, 
together  with  a  friendly  legislature.  The  contest  was  very  bitter, 
and  before  it  ended,  the  identification  of  the  Wheelock  faction  with 
anti-Federalism  had  become  complete.  The  new  governor  and  legis- 
lature passed  acts  amending  the  college  charter,  the  principal  changes 
being  an  increase  of  the  number  of  trustees  from  twelve  to  twenty-one 
and  the  creation  of  a  board  of  overseers  having  a  veto  on  the  more 
important  acts  of  the  trustees.  The  new  trustees  were  to  be  appointed 
by  the  governor  and  council,  and  then  the  board  was  to  be  self-per- 
petuating as  before.  One  result  of  these  legislative  acts  was  the  res- 
toration of  Wheelock  to  the  position  of  president,  with  his  friends  in 
practical  control  of  the  institution.  The  old  anti- Wheelock  trustees 
largely  contributed  to  this  result  by  refusing  to  take  any  part  in  re- 
organizing the  college  under  the  new  laws.  Regarding  the  charter 
amendments  as  unconstitutional,  they  brought  suit  in  the  state  court 
to  test  their  validity.     Until  the  final  decision  in  1819  the  university, 


lo    THE   CHANGING   CONCEPTIONS   OF  PROPERTY 

as  the  reorganized  college  was  called,  and  the  college,  maintained  by 
the  old  trustees  as  a  separate  institution,  were  rival  seats  of  learning. 

Daniel  Webster,  a  graduate  of  the  college,  had  been  retained  by 
President  Wheelock  about  a  year  before  the  passage  of  the  acts,  but 
was  persuaded  by  personal  and  political  friends  to  abandon  Wheelock. 
Later  he  appeared  as  chief  counsel  for  the  trustees.  The  acts  were 
attacked  as  being  opposed  to  general  principles  of  government,  as 
contrary  to  various  provisions  of  the  New  Hampshire  constitution, 
and  as  in  violation  of  the  federal  constitution  in  that  they  impaired 
the  obHgation  of  a  contract  contained  in  the  college  charter  of  1769. 
The  highest  state  court,  then  composed  of  three  judges  of  exceptional 
ability,  decided  against  the  old  trustees  on  every  point, ^  and  the  case 
was  taken  to  the  United  States  supreme  court  solely  on  the  point  per- 
taining to  the  federal  constitution.^ 

Senator  Henry  Cabot  Lodge,  in  his  biography  of  Webster,  has 
summarized  so  clearly  and  forcibly  the  facts  relating  to  the  conduct 
of  this  case  in  the  supreme  court  that  I  shall  take  the  liberty  of  quoting 
from  his  work.  Mr.  Lodge  speaks  with  authority,  for  he  wrote  this 
biography,  as  he  tells  us,  only  after  he  had  "  carefully  examined  all 
the  literature,  contemporary  and  posthumous,  relating  to  Mr.  Web- 
ster." ^  Webster,  when  publishing  his  supreme  court  argument  in 
the  college  case,  had  admitted  that  "something  was  left  out."  Re- 
ferring to  this,  Mr.  Lodge  says : 

That  something,  which  must  have  occupied  in  its  delivery  nearly  an  hour, 
was  the  most  conspicuous  example  of  the  generalship  by  which  jMr.  Web- 
ster achieved  victory,  and  which  was  wholly  apart  from  his  law.  .  .  . 

Mr. Webster  was  fully  aware  that  he  could  rely,  in  any  aspect  of  the  case, 
upon  the  sympathy  of  IVIarshall  and  Washington  (Associate  Justice  Bush- 
rod  Washington).  He  was  equally  certain  of  the  unyielding  opposition  of 
Duvall  and  Todd ;  the  other  three  judges,  Johnson,  Livingston  and  Story, 
were  known  to  be  adverse  to  the  college,  but  were  possible  converts.  The 
first  point  was  to  increase  the  sympathy  of  the  Chief  Justice  to  an  eager  and 
even  passionate  support.  Mr.  Webster  knew  the  chord  to  strike,  and  he 
touched  it  with  a  master  hand.  This  was  the  "  something  left  out,"  of 
which  we  know  the  general  drift,  and  we  can  easily  imagine  the  effect. 


In  the  midst  of  all  the  legal  and  constitutional  arguments,  relevant  and 
irrelevant,  even  in  the  pathetic  appeal  which  he  used  so  weU  in  behalf  of 
his  alma  mater,  Mr.  Webster  boldly  and  yet  skillfully  introduced  the 
political  view  of  the  case.  So  delicately  did  he  do  it  that  an  attentive  listener 
did  not  realize  that  he  was  straying  from  the  field  of  "  mere  reason  "  into  that 

>  I  N  H.  III.  The  report  of  this  case  is  reprinted,  with  arguments  of  counsel,  in 
65  N.  H.  473- 

«4  WTieaton  518. 

*  Life  of  Webster  (in  American  Statesmen  Series),  p.  i. 


AND   THE   FUNCTIONS   OF   GOVERNMENT  ii 

of  political  passion.  Here  no  man  could  equal  him  or  help  him,  for  here  his 
eloquence  had  full  scope,  and  on  this  he  relied  to  arouse  Marshall,  whom 
he  thoroughly  understood.  In  occasional  sentences  he  pictured  his  beloved 
college  under  the  wise  rule  of  Federalists  and  the  church.  He  depicted  the 
party  assault  that  was  made  upon  her.  He  showed  the  citadel  of  learning 
threatened  with  unholy  invasion  and  falling  helplessly  into  the  hands  of 
jacobins  and  free-thinkers. ^ 

Of  course,  the  jacobins  were  the  followers  of  JefTerson,  and  the  free- 
thinkers were  Governor  Plumer  and  his  supporters,  who  w^ere  then 
carrying  on  an  unprecedented  struggle  for  the  legal  equality  of  all 
religious  denominations  in  New  Hampshire.  In  the  following  year 
they  were  successful  in  depriving  the  Congregational  Church  of  the 
tax-exemption  privilege  theretofore  accorded  to  its  clergy,  and  in 
actually  enacting  a  law  that  no  citizen  should  be  compelled  to  con- 
tribute to  any  religious  society  "without  his  consent  first  had  and  ob- 
tained." History  records  that  the  supporters  of  these  revolutionary 
measures  were  termed  "infidels,  —  enemies  of  God  and  religion." 

Mr.  Lodge,  speaking  of  Webster's  address,  proceeds : 

As  the  tide  of  his  resistless  and  solemn  eloquence,  mingled  with  his 
masterly  argument,  flowed  on,  we  can  imagine  how  the  great  Chief  Justice 
roused  like  an  old  warhorse  at  the  sound  of  the  trumpet.  The  words  of 
the  speaker  carried  him  back  to  the  early  years  of  the  century,  when,  in 
the  full  flush  of  manhood,  at  the  head  of  his  court,  the  last  stronghold  of 
Federalism,  the  last  bulwark  of  sound  government,  he  had  faced  the  power 
of  the  triumphant  Democrats.  Once  more  it  was  IMarshall  against  Jeffer- 
son —  the  judge  against  the  president.  Then  he  had  preserved  the  ark  of 
the  Constitution.  Then  he  had  seen  the  angry  waves  of  popular  feeUng 
breaking  vainly  at  his  feet.  Now,  in  his  old  age,  the  conflict  was  revived. 
Jacobinism  was  raising  its  sacrilegious  hand  against  the  temples  of  learning, 
against  the  friends  of  order  and  good  government.  The  joy  of  battle  must 
have  glowed  once  more  in  the  old  man's  breast  as  he  grasped  anew  his 
weapons  and  prepared  with  all  the  force  of  his  indomitable  will  to  raise  yet 
another  constitutional  barrier  across  the  path  of  his  ancient  enemies. 


We  cannot  but  feel  that  Mr.  Webster's  lost  passages,  embodying  this 
political  appeal,  did  the  work,  and  that  the  result  was  settled  when  the 
political  passions  of  the  Chief  Justice  were  fairly  aroused.  Marshall  would 
probably  have  brought  about  the  decision  by  the  sole  force  of  his  imperious 
will.  But  Mr.  Webster  did  a  good  deal  of  effective  work  after  the  argu- 
ments were  all  finished,  and  no  account  of  the  case  would  be  complete  with- 
out a  glance  at  the  famous  peroration  with  which  he  concluded  his  speech 
and  in  which  he  boldly  flung  aside  all  vestige  of  legal  reasoning,  and  spoke 
directly  to  the  passions  and  emotions  of  his  hearers. 

'  Ibid.  p.  87. 


12     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

Mr.  Lodge  quotes  from  a  description  of  Webster's  peroration  by 
Professor  Goodrich,  an  eye-witness  of  the  scene.  Goodrich  tells  us 
that  Webster,  after  finishing  his  legal  argument,  stood  silent  a  few 
moments  and  then  went  on  to  speak  personally  of  the  college  and  to 
predict  great  disaster  for  all  colleges  and  for  the  private  rights  of  in- 
dividuals if  the  legislative  acts  of  New  Hampshire  should  be  upheld. 
While  speaking  in  a  personal  way  of  his  alma  mater,  he  broke  down 
and  had  to  pause  to  compose  himself.  In  ''broken  words  of  tender- 
ness" he  then  went  on  to  speak  of  his  attachment  to  the  college. 
Goodrich  continues  his  description  thus : 

The  court  room  during  these  two  or  three  minutes  presented  an  extraor- 
dinary spectacle.  Chief  Justice  Marshall,  with  his  tall  and  gaunt  figure 
bent  over  as  if  to  catch  the  sHghtest  whisper,  the  deep  furrows  of  his  cheek 
expanded  with  emotion  and  his  eyes  suffused  with  tears  ;  Mr.  Justice  Wash- 
ington, at  his  side,  with  his  small  and  emaciated  frame,  and  countenance 
more  like  marble  than  I  ever  saw  on  any  other  human  being  —  leaning 
forward  with  an  eager,  troubled  look ;  and  the  remainder  of  the  court  at 
the  two  extremities,  pressing,  as  it  were,  to  a  single  point,  while  the  audience 
below  were  wrapping  themselves  round  in  closer  folds  beneath  the  bench, 
to  catch  each  look  and  every  movement  of  the  speaker's  face. 

This  peroration  had  been  used  by  Webster  four  months  before  in 
the  state  court,  with  similar  effect  upon  a  sympathetic  audience,  but 
not  upon  the  court,  although  two  of  the  three  judges  were  graduates 
of  Dartmouth.     It  is  not  recorded  that  they  were  moved  to  tears. 

Mr.  Lodge  comments  further  on  the  part  Webster  played  in  this 
forensic  contest : 

Great  lawyer  as  he  undoubtedly  was,  he  felt  on  this  occasion  that  he  could 
not  rely  on  legal  argument  and  pure  reason  alone.  Without  appearing  to 
go  beyond  the  line  of  propriety,  without  indulging  in  a  declamation  unsuited 
to  the  place,  he  had  to  step  outside  of  legal  points  and  in  a  freer  air,  where 
he  could  use  his  keenest  and  strongest  weapons,  appeal  to  the  court  not  as 
lawyers,  but  as  men  subject  to  passion,  emotion  and  prejudice.  This  he 
did  boldly,  delicately,  successfully,  and  thus  he  won  his  case. 

In  confirmation  of  Mr.  Lodge's  view  of  the  matter,  we  may  quote 
the  opinion  of  Mr.  Joseph  P.  Cotton,  Jr.,  the  editor  of  a  recent  edition 
of  "The  Constitutional  Decisions  of  Marshall."  In  his  comment 
on  this  case  he  says : 

The  inference  is  unavoidable  that  in  that  hour  he  (Webster)  argued,  and 
the  court  listened,  outside  the  record.  There  can  be  little  question  that, 
by  the  influence  of  counsel,  by  some  subtle  influence  of  politics  or  friend- 
ships, there  seems  to  have  crept  into  the  consideration  of  the  Dartmouth 
College  case  a  distinct  bias  in  favor  of  the  college.^ 

1  The  Constitutional  Decisions  of  Marshall,  Vol.  I,  p.  347. 


AND   THE   FUNCTIONS   OF   GOVERNMENT  13 

Webster  devoted  most  of  his  legal  argument  to  questions  which, 
as  he  acknowledged,  were  not  in  any  way  before  the  court.  The  only 
point  of  which  the  federal  supreme  court  had  jurisdiction  was  the 
alleged  violation  of  the  federal  constitution  with  reference  to  im- 
pairing the  obligation  of  contracts.  To  this  point  Webster  devoted  six 
pages  of  his  published  argument,  as  compared  with  thirty  pages  given 
to  points  on  which  the  last  judicial  word  had  been  spoken  by  the  state 
court. ^  Any  modern  court  would  have  required  him  to  speak  only 
on  the  question  of  which  the  court  had  jurisdiction. 

Even  in  the  state  court  the  plaintiffs  had  had  a  great  advantage  in 
the  superior  ability  and  astuteness  of  their  counsel.  In  addition  to 
Webster's  wonderful  powers  as  an  advocate  and  orator,  they  had  the 
services  of  Jeremiah  Mason  and  Judge  Jeremiah  Smith,  then  leaders 
of  the  profession  in  New  England.  At  Washington  the  defendant's 
interests  were  intrusted  to  John  Holmes,  of  Maine,  a  scheming  politi- 
cian, who  is  said  to  have  been  a  "noisy  eulogist  and  reputed  protege 
of  Jefferson,"  representing  "in  politics,  law  and  statesmanship  every 
thing  that  the  soul  of  Marshall  loathed."  ^  His  argument  occupied 
about  three  hours,  and  seems  to  have  been  a  compound  of  legal  mis- 
apprehension and  ranting  declamation.  William  Wirt,  Monroe's 
brilliant  attorney-general,  was  employed  to  assist  Holmes ;  but  the 
case  was  not  much  benefited  by  his  appearance,  for  he  was  not  in  har- 
mony with  his  associate  and  was  so  overburdened  with  the  duties 
of  his  office  that  he  made  practically  no  preparation  on  the  case  and 
presented  a  sorry  spectacle  in  the  argument.  He  was  known  to  be  the 
favorite  adviser  and  confidant  of  Jefferson.  After  the  case  had  been 
argued  at  Washington,  additional  counsel  was  employed,  on  behalf 
of  the  State  of  New  Hampshire,  in  the  person  of  William  Pinkney, 
of  Maryland,  then  the  recognized  leader  of  the  bar  in  the  United 
States.  Mr.  Pinkney  tried  to  obtain  the  privilege  of  rearguing  the 
case,  but  it  was  too  late ;  the  Chief  Justice  would  give  him  no  op- 
portunity for  making  the  motion. 

But  even  with  the  many  advantages,  fair  and  unfair,  on  the  side 
of  the  plaintiffs,  after  the  case  was  submitted  to  the  court,  a  majority 
of  the  seven  justices  were  not  ready  to  say  that  the  obligation  of  any 
contract,  in  the  constitutional  sense,  had  been  impaired  by  the  amend- 
ments to  the  college  charter.  On  the  following  day  the  Chief  Justice 
announced  that  the  court  could  agree  on  nothing  and  the  case  would 
be  continued  for  a  year,  until  the  next  term.  Mr.  Lodge  comments 
as  follows : 

The  fact  probably  was  that  Marshall  found  the  judges  five  to  two  against 
the  college,  and  that  the  task  of  bringing  ihem  into  line  was  not  a  light  one. 

1  Timothy  Farrar,  Report  of  Darmouth  College  vs.  Woodward  (1819). 

2  John  M.  Shirley,  Dartmouth  College  Causes  (1879),  p.  231. 


14    THE   CHANGING   CONCEPTIONS   OF  PROPERTY 

If  Mr.  Lodge  is  right,  we  have  here  established  a  novel  rule  of 
judicial  procedure,  namely,  that  when  seven  judges,  after  full  argu- 
ment, stand  five  to  two  in  favor  of  one  party,  if  a  Chief  Justice  with 
an  "imperious  will"  is  one  of  the  two,  the  j^roper  course  is  to  adjourn 
the  case  and  bring  the  five  "into  line." 

Mr.  Lodge  gives  us  some  light  on  the  getting  "into  line"  process. 
He  tells  us  how  the  batteries  of  the  Federalist  press,  of  printed  pam- 
phlets, letters  and  essays,  which  had  already  been  brought  into  action 
for  the  college  under  the  stress  of  party  influence,  were  now  trained 
upon  the  opposing  side  "with  increased  eagerness"  in  order  to  assist 
Marshall  in  his  "task."  The  object,  he  says,  was  to  "sway  the 
judges  without  their  being  aware  of  it."  The  printed  arguments  of 
the  plaintiffs'  counsel  and  other  documents  "were  carefully  sent  to 
certain  of  the  judges,  but  not  to  all."  With  Story,  whom  Mr.  Lodge 
describes  as  "a  Democrat  by  circumstances,  a  Federalist  by  nature," 
the  trustees  had  "little  difficulty";  but  "to  reach  Livingston  and 
Johnson  was  not  so  easy,  for  they  were  out  of  New  England,  and  it 
was  necessary  to  go  a  long  way  round  to  get  at  them."  Mr.  Lodge 
explains  one  of  the  circuitous  ways  pursued  in  order  to  reach  these 
two  judges.  It  lay  through  Chancellor  Kent,  "the  great  legal  up- 
holder of  Federalism  in  New  York."  Justice  Livingston  was  from 
New  York,  and  had  sat  on  the  same  state  bench  with  Kent,  and  Justice 
Johnson,  of  South  Carolina,  was  a  close  friend  of  the  Chancellor. 

Kent's  first  impression,  like  that  of  Story,  was  decidedly  against  the 
college,  but  after  much  effort  on  the  part  of  the  trustees  and  their  able  allies 
Kent  was  converted,  partly  through  his  reason,  partly  through  his  Feder- 
alism. 

Mr.  Lodge  says  that  "the  whole  business  was  managed  like  a  quiet, 
decorous  political  campaign." 

At  the  present  time  counsel  who  should,  after  the  argument  of  a 
case,  send  any  document  "to  certain  of  the  judges,  but  not  to  all,"  or 
who  should  submit  any  paper  to  the  judges  without  giving  it  also  to 
opposing  counsel,  would  be  courting  proceedings  for  their  disbar- 
ment;  and  any  judge  who  could  be  "reached"  by  the  imperceptible 
methods  described  by  Mr.  Lodge,  without  "being  aware  of  it,"  would 
be  considered  fit  only  for  the  next  world. 

The  quotations  which  have  been  made  from  Mr.  Lodge  with  ref- 
erence to  the  means  used  to  bring  about  a  decision  favorable  to  the 
college,  are  amply  supported  by  known  facts  and  documents,  many  of 
which  have  been  industriously  collected  by  Mr.  John  M.  Shirley,  who 
published  in  1879  a  history  of  "The  Dartmouth  College  Causes." 
That  Marshall's  "imperious  will"  was  a  tremendous  force  in  producing 
judicial  results,  is  well  recognized.  Sometimes  he  rendered  a  decision 
and  entered  judgment  without  taking  the  trouble  to  find  out  whether 


AND  THE  FUNCTIONS  OF  GOVERNMENT     15 

his  view  was  supported  by  a  majority  of  the  judges,  and  in  certain 
cases  a  minority  thus  dictated  the  action  of  the  court. ^  In  the  lan- 
guage of  Professor  James  B.  Thayer,  in  his  Marshall  Day  address, 
the  Chief  Justice  "was  sometimes  curiously  regardless  of  conven- 
tions." 2 

As  to  evidence  of  the  "decorous  political  campaign,"  much  of  it 
has  been  destroyed,  scattered  or  suppressed.  Judge  Smith's  volumi- 
nous correspondence  with  Webster  and  other  prominent  actors  in  the 
struggle,  was  destroyed  by  him  in  1824,  and  many  of  Thompson's 
letters  went  "to  the  paper  mill."  But  a  few  letters  have  been  left 
for  the  historian.  Francis  Brown,  the  new  president  of  the  college, 
went  to  Albany  and  had  conferences  with  Chancellor  Kent  and 
Governor  Clinton.  The  latter  was  one  of  the  leading  Federalists  of 
the  country  and  readily  lent  his  aid  against  the  followers  of  Plumer, 
who  were  especially  antagonistic  to  him.  In  letters  to  Webster 
President  Brown  speaks  of  dining  with  Kent  and  discussing  the  college 
case  and  of  learning  that  Justice  Johnson  had  visited  Kent  and  talked 
of  the  case  with  him.  Brown  had  discovered  "from  other  sources" 
that  Johnson  had  "requested  the  Chancellor's  opinion."  He  suggests 
that  Webster  get  Chief  Justice  Isaac  Parker,  of  Massachusetts,  to 
write  to  the  Chancellor.  He  speaks  of  "the  half  secret  and  cautious 
manner"  in  which  printed  copies  of  Webster's  argument  had  been 
distributed.  On  September  ig,  181 8,  President  Brown  expressed  the 
opinion,  "New  England  and  New  York  are  gained,"  meaning  that 
Story  and  Livingston  had  been  reached.^  Mr.  Shirley  says  that  in 
August,  1818,  copies  of  the  arguments  of  plaintiffs'  counsel  were 
furnished  by  Webster  to  Justice  Story,  "to  be  distributed  by  him  to  a 
portion  of  the  judges."  ^  At  the  reassembling  of  the  supreme  court, 
in  February,  1819,  about  eleven  months  after  the  arguments,  all  were 
in  line  for  the  college  except  Justices  Duvall  and  Todd.  Duvall 
dissented  without  filing  an  opinion,  and  Todd  was  absent  on  account 
of  illness. 

The  trustees  of  Dartmouth  College  did  not  carry  on  this  politico- 
legal  struggle  because  they  feared  any  disastrous  results  to  the  college 
from  a  participation  by  the  state  in  its  control.  While  the  amending 
statutes  were  under  consideration,  three  of  the  leading  trustees, 
Thompson,  Paine  and  McFarland,  presented  a  memorial  to  the  legis- 
lature, in  which  they  said  they  would  have  no  objection,  and  believed 
their  fellow  trustees  would  have  no  objection,  "to  the  passage  of  a  law 
connecting  the  government  of  the  state  with  that  of  the  college,  and 
creating  every  salutary  check  and  restraint  upon  the  official  conduct  of 
the  trustees."    They  proposed  a  plan  by  which  the  higher  state  officials 

1  As  in  Rose  vs.  Himley,  4  Cranch  241.     See  Hudson  vs.  Guestier,  6  Cranch  281. 

2  Dillon,  Memorial  Addresses  of  1901,  Vol.  I,  p.  232. 

'Shirley,  op.  cit.  pp.  265,  271.  <Ibid.  p.  201. 


1 6     THE   CHANGING   CONCEPTIONS  OF   PROPERTY 

would  constitute  a  board  of  overseers  having  an  absolute  veto  on  all 
acts  of  the  trustees.  As  Mr.  Shirley  says,  "  th?  trustees  were  willing 
that  almost  any  amendment  should  be  made  to  the  charter,  if  so  framed 
that  they  could  exclude  Wheelock  and  his  friends  from  any  share 
in  the  government  of  the  college,  and  could  retain  possession  for 
themselves  and  their  friends."  ^ 

There  are  those  who  consider  the  Dartmouth  College  decision  as 
an  important  bulwark  of  property.  Their  error  lies  in  the  confusion 
of  the  idea  of  privilege  with  the  idea  of  property.  Privilege  is  the 
antithesis  of  property,  a  special  favor,  an  exception  to  the  rule  of 
competition  and  the  law  of  private  property.  It  enables  favored  in- 
dividuals and  classes  to  levy  tribute  upon  the  property  of  others. 
When  crystallized  into  law  and  made  perpetual,  a  privilege  may  be 
capitalized  and  treated,  in  form,  as  property.  It  is  property  in  the 
same  sense  in  which  the  slaves  were  property. 

Those  who  deplore  the  results  of  the  Dartmouth  College  decision 
need  not  yield  to  any  in  their  devotion  to  the  principle  of  private 
property.  That  a  man  should  enjoy  the  fruits  of  his  own  labor  is  a  fun- 
damental postulate  of  the  human  mind.  Their  objection  to  this  de- 
cision is  not  that  it  supports  the  rights  of  property,  but  that  it  enables 
privilege  to  masquerade  in  the  garments  of  property. 

II.   Legal 

The  doctrine  that  corporate  charters  and  franchises  are  contracts 
and  not  subject  to  repeal,  has  been  in  some  measure  evaded  in  many 
of  the  states  by  reservation  of  the  power  of  repeal  or  amendment. 
Yet  the  statement  of  Mr.  Cotton  is  still  true,  that  the  doctrine  of  the 
sacredness  of  charters,  and  franchises,  growing  out  of  the  Dartmouth 
College  decision  "has  woven  itself  into  the  tissue  of  our  law,  as  has, 
perhaps,  no  other  paper-made  doctrine  of  constitutional  law."  ^ 

One  of  Marshall's  eulogists  has  said  that  the  effect  of  this  decision 
was  "to  withdraw  the  obligations  of  contracts  from  the  power  of  the 
state  legislatures  to  impair  their  validity,  and  to  place  them  also 
beneath  the  protecting  aegis  of  the  Constitution."  In  truth,  it  did 
nothing  of  the  sort.  The  protection  of  ordinary  contracts  from  im- 
pairment by  the  states  was  effectively  secured  by  the  words  of  the 
Constitution.  What  Marshall  and  his  associates  did  was,  by  a  forced 
and  unheard-of  construction,  to  include,  under  the  term  "contracts," 
certain  acts  of  legislation  which  ought  to  be  at  all  times  open  to  repeal 
or  amendment.  The  royal  charter  given  to  Dartmouth  College  in 
1769,  providing  that  the  college  sbould  always  be  governed  by  a  self- 
perpetuating  board  of  twelve  trustees,  was  declared  to  be  forever 

'  Shirley,  op.  cit.  p.  10.  ^  Ibid.  Vol.  I,  p.  347. 


AND    THE   FUNCTIONS   OF    GOVERNMENT  17 

binding  on  the  State  of  New  Hampshire.  Under  the  clause  in  the 
federal  constitution  forbidding  any  state  to  pass  laws  "impairing  the 
obligation  of  contracts,"  it  was  held  that  the  legislature  could  not  in- 
crease the  number  of  trustees  to  twenty-one  and  provide  temporarily 
for  the  appointment  of  new  trustees  by  the  governor  and  council. 

The  chief  question  in  the  case  was  thought  to  be,  whether  this  in- 
stitution was  public  or  private.  The  highest  court  of  New  Hampshire 
had  pronounced  it  public.  Chief  Justice  Marshall  admitted  that  the 
purpose  of  the  institution  was  public,  that  "education  is  an  object  of 
national  concern"  and  that  "there  may  be  an  institution  founded  by 
government,  and  placed  entirely  under  its  immediate  control,  the 
officers  of  which  would  be  public  officers,  amenable  exclusively  to 
government."  His  decision  was  based  on  the  conclusion  that  this 
institution  was  founded  by  private  parties  with  private  funds  and  that 
the  incorporation  did  not  claange  its  character  except  to  make  it  "im- 
mortal" and  its  management  more  convenient.  He  took  no  account 
of  the  principle,  declared  by  one  of  his  successors  in  1876,  that  certain 
institutions  or  enterprises,  conducted  exclusively  with  private  funds 
but  having  a  purpose  "affected  with  a  public  interest,"  are  proper 
subjects  for  state  regulation  and  control. 

Among  the  mistakes  of  law  and  fact  contained  in  the  reasoning  of 
the  court,  there  are  two  very  serious  ones  which  relate  to  the  particular 
facts  of  this  case.  First,  Dartmouth  College  was  in  fact  public  in  its 
foundation  and  endowment  as  well  as  in  its  purpose ;  and,  second,  the 
college  charter  contained  no  such  contract  as  the  court  assumed  to  find 
and  enforce. 

(i)  Unfortunately,  counsel  for  the  state  were  outgeneraled  and  did 
not  get  all  important  facts  into  the  record  sent  to  Washington.  But 
many  additional  facts  were  brought  to  the  attention  of  the  supreme 
court  in  connection  with  the  three  additional  cases  begun  in  the 
United  States  circuit  court  and  certain  motions  made  before  the 
supreme  court  in  the  college  case  proper.  Mr.  Shirley  concludes  that 
Marshall  knew  the  essential  facts.  This  author  shows  that  the  large 
sums  of  money  collected  in  Great  Britain  and  America  by  Eleazer 
Wheelock,  which  Marshall  says  were  paid  to  the  corporation  "on  the 
faith"  of  the  "contract"  between  "the  donors,  the  trustees  and  the 
crown,"  were  never  contributed  or  paid  to  Dartmouth  College  at  all, 
but  to  Moor's  Indian  Charity  School.  This  school,  founded  by 
Wheelock  and  already  endowed  by  Josiah  Moor,  although  carried  on 
by  Wheelock  on  the  same  grounds  as  those  occupied  by  the  college, 
was  kept  entirely  separate  from  Dartmouth  College  in  management 
and  financial  support.  It  appears  almost  certain  that  the  first  en- 
dowment of  the  college  was  the  gift  of  the  public  land  presented  on 
behalf  of  New  Hampshire  by  John  Wentworth,  colonial  governor,  soon 
after  he  issued  the  charter.     Other  public  donations  by  the  state 


1 8     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

followed,  as  well  as  certain  private  donations.  The  massive  structure 
of  conclusions  based  by  the  court  on  the  alleged  "private  foundation" 
falls  to  the  ground. 

"The  Earl  of  Dartmouth  and  the  other  trustees  in  England," 
whom  Marshall  names  as  probably  "the  largest  contributors,"  on 
April  25,  1771,  wrote  to  Dr.  Wheelock : 

We  shall  expect  that  you  keep  a  regular  and  distinct  account  of  all 
moneys  laid  out  in  erecting  the  school,  educating  Indian  youths,  and  equip- 
ping and  maintaining  missionaries  agreeable  to  the  design  of  our  institution, 
and  that  you  do  not  blend  them  with  your  college,  and  other  matters 
foreign  to  and  separate  from  our  undertaking.^ 

On  November  g,  1770,  Dr.  Wheelock  had  written  to  one  of  these 
English  trustees : 

The  charter  was  never  designed  to  convey  the  least  power  or  control  of 
any  funds  collected  in  Europe,  nor  does  it  convey  any  jurisdiction  over  the 
school  to  the  trustees  of  the  college.  ...  If  I  resign  my  office  as  president 
of  the  college,  I  yet  retain  the  same  relation  to  the  school  and  control  of  it 
as  ever. 2 

It  is  supposed  that  the  college  was  named  after  the  Earl  of  Dart- 
mouth, instead  of  after  Governor  Wentworth,  its  real  benefactor,  in 
order  to  mollify  the  displeasure  felt  by  the  noble  Earl  and  his  co- 
trustees at  Wheelock's  failure  to  stick  to  the  original  plan  and  confine 
his  attention  to  the  Indian  Charity  School,  a  purely  missionary 
enterprise. 

(2)  The  Chief  Justice  said:  "It  can  require  no  argument  to  prove 
that  the  circumstances  of  this  case  constitute  a  contract."  ^  The 
contract  which  Marshall  enforced  against  the  State  of  New  Hampshire 
was  a  supposed  agreement,  by  the  English  king,  that  the  charter 
should  not  be  repealed  or  amended  in  essential  particulars  by  any 
future  legislative  act.  But  the  late  Chief  Justice  Charles  Doe, 
delivering  the  opinion  of  the  New  Hampshire  supreme  court  in  1886 
in  the  case  of  Dow  vs.  Railroad  Company,  *  has  shown  that  if  George 
III  had  attempted  to  make  the  contract  which  Marshall  enforced,  he 
would  probably  have  lost  his  crown  and  the  agreement  would  have 
been  plainly  illegal  and  void  under  the  English  Bill  of  Rights  of  16S9  and 
the  Act  of  Settlement  of  1701.  James  II  had  been  deposed  in  1688 
for  making  contracts  of  this  sort,  that  is,  for  assuming  to  suspend  or 
nullify  the  legislative  authority  of  Parliament.  While  the  college 
charter  contains  suitable  language  to  indicate  that  the  grant,  so  far 
as  the  king  was  concerned,  was  to  be  permanent  rather  than  for  a  term 
of  years  and  would  not  be  revoked  or  changed  by  him,  it  contains  no 

1  Shirley,  op.  cit.  p.  42.  ^  ^  Wheaton,  p.  627. 

2Ibid.  p.  41.  •>  67  N.H.  27-54. 


AND  THE  FUNCTIONS  OF  GOVERNMENT     19 

word  suggesting  that  the  king  or  his  agent,  Governor^  Wentworth, 
had  any  intention  of  promising  exemption  from  legislative  authority 
and  control. 1  The  English  parliament  has  always  had,  and  on  occa- 
sion has  exercised,  the  power  to  repeal  and  amend  corporate  charters. 

Even  though  the  supreme  court  erred  in  treating  Dartmouth  College 
as  a  "private  school,"  and  in  enforcing  a  so-called  contract  which 
no  one  ever  dreamed  of  making,  the  question  of  chief  importance 
remains :  If  a  corporation  is  "private"  in  the  sense  in  which  Marshall 
used  the  term,  and  if  a  state  legislature  has  unequivocally  attempted  to 
make  its  charter  and  privileges  irrepealable,  is  such  an  act  a  con- 
tract protected  by  the  federal  constitution  from  change  by  any  future 
legislature? 

The  prohibition  against  "laws  impairing  the  obligation  of  contracts" 
had  its  origin  in  the  provision  of  the  "ordinance  of  1787"  for  the 
government  of  the  Northwest  Territory,  to  the  effect  that  no  law 
should  be  made  interfering  with  or  affecting  "private  contracts  or 
engagements"  previously  formed.  The  proceedings  of  the  Constitu- 
tional Convention  indicate  that  the  purpose  of  modifying  this  language 
was  to  restrict  rather  than  to  enlarge  its  scope. 

Very  important  evidence  as  to  the  intended  meaning  of  this  provision 
is  found  in  a  report  made  to  the  Maryland  legislature  by  Luther 
Martin,  a  distinguished  member  of  the  convention  from  that  state. 
He  said  he  had  opposed  this  "contract"  clause  of  the  Constitution 
because  he  thought  the  states  should  have  the  power,  in  times  of 
public  calamity  or  distress,  to  pass  laws  "totally  or  partially  stepping 
the  courts  of  justice,  or  authorizing  the  debtor  to  pay  by  installments, 
or  by  delivering  up  his  property  to  his  creditors,  at  a  reasonable  and 
honest  valuation."  These  were  the  practices,  theretofore  common  in 
the  states,  which  the  clause  was  designed  to  prohibit.  If  Luther 
Martin  had  known  of  any  claim  that  its  scope  was  wider  than  private 
contracts  and  that  it  would  forbid  the  repeal  or  alteration  of  numerous 
legislative  acts,  it  is  not  conceivable  that  he  would  have  neglected  to 
state  the  fact  to  his  state  legislature.  It  is  no  more  concei\'able  that 
such  an  intended  invasion  of  the  rights  of  the  states  could  have  crept 
into  the  Constitution  without  the  strongest  opposition. 

That  the  term  "contracts"  was  designed  to  include  only  agree- 
ments between  private  parties,  is  most  probable.  If  any  agreements 
by  states  were  held  to  be  contracts  in  the  constitutional  sense,  none 
could  reasonably  be  included  except  agreements  made  by  the  state 
in  its  private  capacity,  as  when,  for  example,  it  should  borrow  money, 
employ  workmen  or  contract  for  the  erection  of  a  public  building. 
Acts  of  legislation,  done  in  the  public  capacity  of  the  state,  were  ex- 
cluded by  reason,  sound  policy  and  the  general  understanding  of  men. 

If  the  power  of  individuals  to  organize  themselves  into  a  corporation 

*  Farrar,  op.  cit.  pp.  2-16. 


20    THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

is  not  to  be  considered  a  special  privilege  conferred  by  the  state,  but  is 
a  common  right  regulated  by  general  laws,  no  legislative  act  relating 
to  incorporation  can  be  considered  a  "contract."  It  is  only  with 
reference  to  special  powers,  not  possessed  by  all  citizens  in  common, 
that  the  " contract"  claim  is  made.  But  if  we  conclude  that  the  mere 
right  to  exist  as  a  corporation  is  a  franchise  or  special  privilege,  and  if 
we  admit  that  sovereign  states  have  authority  to  grant  special  privi- 
leges to  individuals,  such  a  grant  must  of  necessity  be  only  temporary. 

That  a  special  privilege,  once  granted,  cannot  be  withdrawn,  is  a 
contradiction  of  the  original  powers  of  sovereignty  and  is  abhorrent 
to  the  intellectual  perceptions  as  well  as  to  moral  principle.  If  a 
state  is  to  grant  privileges  to  some,  it  must  have  the  power  to  do  so  by 
withdrawing  privileges  from  others.  The  result  of  any  "contract," 
therefore,  which  makes  a  special  privilege  irrevocable  is  to  subtract 
a  portion  of  sovereignty  from  the  state  and  confer  it  upon  individuals. 
But  sovereignty,  in  its  very  nature,  is  continuous  and  indestructible. 
If  a  part  of  it  may  be  lost,  the  whole  may  be  lost  by  successive  losses 
of  different  parts,  a  result  absurd  and  unthinkable.  This  principle  is 
well  stated  by  Chief  Justice  Doe :  "The  agents'  authority  to  make  law 
does  not  enable  them  to  suspend  their  own  duty,  and  bind  their  prin- 
cipals, by  agreeing  with  a  third  party  that  law  shall  not  be  made."  ^ 
The  prohibition  in  the  federal  constitution  against  "impairing  the 
obligation  of  contracts"  was  never  intended,  could  not  in  logic  or 
reason  have  been  intended,  to  prevent  a  state  from  preserving  its  own 
integrity,  from  retaining  the  power  to  legislate  as  fully  and  completely 
next  year  as  it  can  legislate  this  year,  from  withdrawing  any  special 
privilege  which  it  has  granted. 

If  the  mere  right  to  be  a  corporation  is  a  special  privilege  which  a 
present  legislature  cannot  guarantee  against  repeal  or  change  by  a 
future  legislature,  much  more  is  this  true  of  those  immensely  valuable 
privileges,  so  often  granted  in  corporate  charters  or  elsewhere,  by  which 
the  most  important  powers  of  sovereignty  are  claimed  to  have  been 
"contracted"  away  to  private  parties.  These  powers  vary  from  the 
most  trifling  up  to  some  of  the  very  highest  and  most  essential,  among 
which  are  the  power  of  maintaining  the  existence  of  the  government 
by  taxation  and  the  power  of  protecting  citizens  from  the  extortions 
of  monopoly. 

The  chief  precedents  for  the  decision  in  the  Dartmouth  College 
case  were  two  cases  in  which  Marshall  had  delivered  the  opinion  of 
the  court.  In  one  of  them,  Fletcher  vs.  Peck  (1810) ,  the  court  extended 
the  "contract"  clause  of  the  federal  constitution  to  prevent  an  act  of 
alleged  confiscation  by  the  legislature  of  Georgia.-  There  are  few 
lawyers  who  will  not  admit  that  this  was  a  judicial  amendment  of 
the  Constitution  by  means  of  a  clever  legal  fiction.     This  case  is 

167N.H.46.  2  6CranchS7. 


AND   THE   FUNCTIONS   OF   GOVERNMENT  21 

generally  regarded  as  having  been  collusive,  a  mere  sham  battle  in 
which  both  parties  desired  to  obtain  the  same  decision.  The  evidences 
of  collusion  were  so  plain,  upon  the  face  of  the  record,  that  they  were 
remarked  by  Justice  Johnson  in  his  opinion.  In  New  Jersey  vs. 
Wilson  (181 2)  Marshall  had  held  that  the  State  of  New  Jersey  had 
contracted  away  forever  the  right  to  tax  certain  private  lands  and 
that  this  "contract"  was  protected  by  the  United  States  Constitu- 
tion.^ This  case  also  is  open  to  grave  suspicion  of  collusion,  and  prac- 
tically no  lawyer  now  defends  the  decision  on  any  ground. 

The  principle  assumed  to  have  been  established  in  the  Dartmouth 
College  case  has  been  refuted  and  repudiated  many  times  by  the 
federal  supreme  court.  The  case  still  has  the  force  of  law  within  a 
narrowed  scope,  and  it  is  often  referred  to  in  terms  of  great  politeness. 
But  when  the  court  musters  up  the  courage  to  o\-errule  it,  few  argu- 
ments will  be  needed  in  addition  to  its  own  opinions.  Certain  of  the 
state  supreme  courts,  notably  that  of  Ohio,  long  and  persistently 
stood  out  against  a  recognition  of  the  doctrine  of  this  case. 

Before  Marshall's  death  in  1835,  he  and  Story  were  sharply  over- 
ruled by  a  majority  of  the  court  in  Ogden  vs.  Saunders,  in  which  it 
was  decided  that  the  prohibition  against  laws  impairing  the  obligation 
of  contracts  does  not  apply  to  contracts  made  subsequent  to  the  enact- 
ment of  the  law  in  question.^  Mr.  Cotton,  referring  to  Marshall's  dis- 
senting opinion  in  this  case,  says  :  "  It  is  hard  to  see  that  it  is  anything 
more  than  ingenious  and  fantastic."  ^ 

In  the  Charles  River  Bridge  case  (1837)  the  court,  under  the  leader- 
ship of  Chief  Justice  Taney,  decided  that  though  legislative  "con- 
tracts" maybe  protected  by  the  Constitution,  such  alleged  contracts 
must  be  construed  according  to  a  rule  directly  opposite  to  the  rule 
applicable  to  private  contracts ;  in  other  words,  grants  of  privileges 
by  the  state  are  to  be  construed  strongly  in  favor  of  the  granting 
party,  while  private  grants  are  construed  strongly  in  favor  of  the 
grantee.^  This  doctrine,  that  nothing  can  be  taken  from  the  state 
unless  it  is  expressly  granted,  led  the  court  to  hold  that  no  exclusive 
franchise  had  been  granted  to  the  bridge  company.  Justice  Story 
dissented  earnestly,  and  logically  if  the  doctrine  of  the  college  case 
was  sound. 

In  West  River  Bridge  Company  vs.  Dix^  (1848)  it  was  settled  that  a 
state  may,  by  the  power  of  eminent  domain,  take  back  any  property, 
franchise  or  privilege  which  it  has  bargained  away  in  a  corporate 
charter  or  otherwise,  making  compensation  for  the  value  of  what  it 
takes.  This  doctrine  is  directly  inconsistent  with  the  college  case 
decision,  as  Justice  McLean  forcibly  pointed  out  in  his  o])inion  in  the 

1  7  Cranch  164.  '  Op.  cit.  Vol.  II,  p.  176. 

2 12  Wheaton  213,  decided  in  1827.  ■•  11  Peters  420. 

^  6  Howard  507. 


2  2     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

Charles  River  Bridge  case.  ^  A  violation  of  contract  does  not  become 
less  a  violation  by  reason  of  the  fact  that  the  protesting  privilege- 
holder  is  given  money  on  being  deprived  of  what  he  contracted  for. 

In  the  "Granger  cases"  (1876)  it  was  decided  that  though  a  railway 
corporation  is  authorized  by  its  charter  to  make  "reasonable  charges," 
the  state  may  by  law  say  what  charges  are  reasonable ;  and  that  when 
property,  corporate  or  otherwise,  is  devoted  to  a  use  which  affects 
"the  community  at  large,"  such  as  transportation  or  storing  grain, 
the  conduct  of  the  enterprise,  and  the  charges  to  be  paid  by  the  public 
are  matters  for  legislative  regulation.  ^  The  sacredness  of  corporate 
charters  was  quietly  ignored.  By  rejecting  the  logic  of  the  Dart- 
mouth College  decision,  Chief  Justice  Waite  made  it  possible  to  control 
public  utility  monopolies,  such  as  transportation,  telegraphs,  tele- 
phones, electric  and  gas  lighting,  etc.,  in  cases  where  the  charter  does 
not  definitely  fix  the  rates  that  may  be  charged. 

In  repeated  decisions  the  supreme  court  has  held  that  the  "police 
power"  of  the  state  is  held  in  trust  by  the  legislature  and  cannot  be 
contracted  away,  even  by  the  most  solemn  and  formal  agreement 
ever  put  in  a  corporate  charter.  The  police  power  "  extends  lo  the 
protection  of  the  lives,  health  and  property  of  the  citizens,  and  to 
the  preservation  of  good  order  and  the  public  morals."  Under  this 
doctrine,  the  legislature  may  prohibit  lotteries,  the  manufacture  and 
sale  of  liquor,  the  carrying  on  of  noxious  trades  in  populous  centers, 
etc.,  in  spite  of  charters  which  expressly  authorize  the  doing  of  the 
things  prohibited.  Yet  justice  Strong  spoke  truly  when,  in  his 
dissenting  opinion  in  the  case  of  the  Northwestern  Fertilizing  Com- 
pany, he  said :  "The  police  power  of  a  state  is  no  more  sacred  than  its 
taxing  power."  He  might  safely  have  said,  "than  any  other  legis- 
lative power."  3  The  majority  of  the  court  overruled  the  Dartmouth 
College  case  in  principle,  though  not  in  name. 

Marshall's  doctrine  that  the  taxing  power  can  be  bartered  away  by 
special  contracts  of  private  parties  with  the  legislature,  has  not 
escaped  violent  assault  in  the  supreme  court,  though  its  undoing  has 
been  thus  far  delayed  by  the  fact  that  it  rests  on  a  definite  precedent 
which  cannot  be  dodged,  but  must  be  followed  or  overruled.  In 
State  Bank  of  Ohio  vs.  Knoop  (1853)  Justice  Catron,  dissenting,  said: 
"The  soverign  political  power  is  not  the  subject  of  contract  so  as  to  be 
vested  in  an  irrepealable  charter  of  incorporation,  and  taken  away 
from,  and  placed  beyond  the  reach  of,  future  legislatures.  .  .  .  The 
taxing  power  is  a  political  power  of  the  highest  class,  and  each  suc- 
ceeding legislature  having  vested  in  it,  unimpaired,  all  the  political 

*  II  Peters  577-578.     Justice  McLean  concurred  in  the  West  River  Bridge  case  on  the 
theory  that  it  was  the  property  of  the  Bridge  Company  that  was  taken,  not  its  franchise. 
2  94  U.S.  113-187. 
'97  U.S.  679. 


AND   THE   FUNCTIONS   OF   GOVERNMENT  23 

powers  previous  legislatures  had,  is  authorized  to  impose  taxes  on  all 
property  in  the  state  that  its  Constitution  does  not  exempt."  ^ 

In  Washington  University  vs.  Rouse  (1869)  Chief  Justice  Chase  and 
Justices  Miller  and  Field,  dissenting,  said,  through  Justice  Miller, 
that  to  hold  that  a  legislature  "can,  by  contract,  deprive  the  state 
forever  of  the  power  of  taxation,  is  to  hold  that  they  can  destroy  the 
government  which  they  are  appointed  to  serve."  In  the  words  of 
Justice  Miller,  the  doctrine  of  irrepealable  tax  exemptions  "must 
finally  be  abandoned,"  but  no  more  certainly  than  the  entire  doctrine 
of  irrepealable  special  privileges  to  individuals  or  corporations  must 
be  abandoned." 

In  the  Chicago  Lake  Front  case  (1892)  it  appeared  that  in  1869  the 
legislature  granted  to  the  Illinois  Central  Railroad  Company  a  tract 
of  more  than  one  thovisand  acres  under  Lake  Michigan,  the  principal 
part  of  Chicago's  harbor,  extending  a  mile  into  the  lake.  The  grant 
having  been  repealed  in  1873,  this  suit  was  brought  to  see  if  the  re- 
pealing law  was  void,  as  "impairing  the  obligation"  of  the  original 
grant.  It  was  decided,  four  against  three,  that  the  repealing  law 
was  valid  on  the  ground  that  the  legislature  held  the  title  to  submerged 
land  under  navigable  waters  in  trust  for  the  people  and  coul  1  not 
alienate  it  except  in  such  small  parcels,  or  in  such  reasonable  and 
limited  ways,  as  might  serve  the  public  purposes  of  navigation, 
commerce,  etc.  Justice  Field,  giving  the  opinion  of  the  court,  said : 
"The  power  to  resume  the  trust  whenever  the  state  judges  best,  is,  we 
think,  incontrovertible.  The  position  advanced  by  the  railroad  com- 
pany .  .  .  would  place  every  harbor  in  the  country  at  the  mercy  of  a 
majority  of  the  legislature  of  the  state."  ^  True  as  this  is,  it  is  no  less 
true  that  the  legislature  holds  in  trust  for  the  people  other  public 
property  and  privileges,  and  that  the  Dartmouth  College  decision, 
in  utter  disregard  of  this  principle,  has  placed,  for  example,  the 
streets  of  every  city  at  the  mercy  of  a  majority  of  the  state  legislature 
or  of  the  municipal  body  to  which  legislative  power  has  been  delegated. 

By  acts  passed  in  1856  and  1865,  the  Minnesota  legislature  incor- 
porated a  railroad  which  later  became  the  Great  Northern,  and  gave 
it  almost  unlimited  authority  to  consolidate  with  other  railroads ; 
but  it  was  provided  that  the  charter  could  be  amended  "in  any  manner 
not  destroying  or  impairing  vested  rights."  In  1874  a  law  was  passed 
prohibiting  the  consolidation  of  parallel  and  competing  railroads.  In 
1895  the  federal  circuit  court  in  Minnesota  was  called  on  to  decide 
whether  the  act  of  1874  impaired  the  contract  contained  in  the  char- 
ter, the  Great  Northern  having  attempted,  after  1874,  a  consolida- 
tion with  the  Northern  Pacific.  It  was  claimed  that  the  right  to  con- 
solidate did  not  become  "vested"  until  it  was  exercised,  and  therefore 
the  act  did  not  "destroy  or  impair"  any  "vested  right."     The  circuit 

1 16  Howard  404.  2  8  Wallace  443-444.  *  146  U.S.  455. 


24     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

judge  held  that  "there  is  no  distinction,  in  reason  or  in  the  authorities, 
between  the  right  to  a  franchise  that  has  been  and  the  right  to  one 
that  has  not  been  used,"  unless  there  has  been  a  forfeiture  for  non- 
user  ;  and  that  "  the  franchise  to  consolidate  with  another  railroad  cor- 
poration was  a  vested  right  of  this  defendant  from  the  time  of  the 
acceptance  of  its  grant."  ^ 

The  circuit  judge  was  right  —  if  there  is  any  virtue  in  the  Dartmouth 
College  decision.  But  the  supreme  court  of  the  United  States,  only 
two  dissenting,  decided  that  he  was  wrong,  that  the  right  to  consolidate 
did  not  become  "vested  "  until  used.^  That  they  did  hot  do  the  logical 
thing  and  overrule  the  college  case  decision,  is  to  be  regretted ;  but 
that  they  refused  to  apply  it,  even  though  using  a  distinction  that 
does  not  distinguish,  is  cause  for  satisfaction  and  hope.  Justice 
Brown,  giving  the  opinion  of  the  court,  said :  "We  think  it  was  compe- 
tent for  the  legislature,  out  of  due  regard  for  the  public  welfare,  to 
declare  that  its  charter  should  not  be  used  for  the  puq^ose  of  stifling 
competition  and  building  up  monopolies.  In  short,  we  cannot  recog- 
nize a  vested  right  to  do  a  manifest  wrong."  ^  These  are  brave  and 
just  words.  When  courageously  and  consistently  applied  to  the  whole 
field  of  constitutional  law,  they  will  destroy  the  last  vestige  of  the 
doctrine  resting  on  the  Dartmouth  College  decision  and  will  restore 
to  the  people  of  the  states  that  complete  and  continuous  control 
of  legislation  which  the  Constitution  gave  them. 

In  his  dissenting  opinion  in  the  Charles  River  Bridge  case,  Justice 
Story  expressed  the  opinion  that  an  exclusive  franchise  to  build  and 
maintain  a  bridge  across  a  river  between  two  cities,  did  not  constitute 
"a  monopoly."^  His  definition  of  monopoly  was,  "An  exclusive 
right  granted  to  a  few,  of  something  which  was  before  of  common 
right,"  such  as,  for  example,  an  exclusive  right  to  navigate  a  river. 
Because  special  legislative  authority  was  necessary  for  individuals 
who  would  build  a  bridge,  an  exclusive  franchise  to  build  one  would 
not  deprive  any  citizen  of  an  already  existing  right.  By  the  same 
test,  an  exclusive  franchise  to  run  a  street  railway  or  lay  gas  pipes  or 
string  electric  wires,  would  not  establish  a  monopoly.  From  judges 
so  utterly  incapable  of  economic  reasoning  or  of  taking  a  long  look 
ahead,  we  should  not  expect  very  good  law  on  economic  subjects. 
We  should  not  judge  them  too  harshly,  for  they  were  trained  and  lived 
in  a  different  age.  But  that  we  should  allow  their  mistakes  of  fact,  their 
legal  misconceptions,  their  economic  obtuseness,  their  partisan  passions 
and  prejudices,  to  reach  down  through  the  decades  and  make  law  for 
us  in  regard  to  some  of  our  most  vital  interests  —  this  is  hard  to  ex- 
plain on  the  theory  that  we  are  an  intelligent,  self-governing  people.^ 

1  73  Fed.  Rep.  944-045.  ^  161  U.S.  646.  ^  Hjjd  p  575  ■>  1 1  Peters  606. 

*  The  point  has  frequently  been  made  by  members  of  the  legal  profession  that  the  Dart- 
mouth College  decision  has  ceased  to  be  of  practical  importance  on  account  of  the  general 


AND   THE   FUNCTIONS   OF   GOVERNMENT  25 

THE    RENEWED    EXTENSION    OF    GOVERNMENT 
CONTROL  OF  ECONOMIC  LIFE 

ANNUAL  ADDRESS   OF  THE   PRESIDENT  OF  THE  AMERICAN 
ECONOMIC   ASSOCIATION 

By  David  Kinley,  of  The  University  of  Illinois 

(From  the  American  Economic  Review,  Supplement,  March,  1914) 

For  some  twenty-five  years  there  has  been  a  marked  recession  among 
English-speaking  peoples  from  the  strong  individualism  of  the  early 
19th  century  towards  a  gradual  extension  of  government  authority 
in  economic  matters.  Laissez-faire  has  been  discredited  both  as 
a  principle  of  political  philosophy  and  as  a  rule  of  conduct.  Whether 
we  should  try  to  restore  its  prestige  or  with  what  other  principle  we 
shall  replace  it,  however,  are  matters  concerning  which  current  dis- 
cussion is  somewhat  confused.  On  the  one  hand  are  those  who  declare 
that  competition  has  broken  down,  and  has  produced  a  monopolistic 
system  which  will  in  time  completely  supplant  it,  and  which  is  of 
such  tremendous  extent  and  power  that  it  can  be  managed  only  by 
the  government.  On  the  other  hand  are  those  who  believe  that  com- 
petition is  a  force  which  should  be  preserved  as  a  ruling  power  in 
economic  life,  and  would  therefore  prevent  by  government  action  the 
establishment  of  monopolies  and  break  them  up  where  they  are  al- 
ready established.  This,  in  substance,  is  the  policy  that  our  own 
federal  government  has  been  pursuing  since  the  enactment  of  the 
Interstate  Commerce  Law  in  1887.  Still  others  urge  that  all  we  need 
to  do  is  to  prevent  the  evils  of  excessive  competition  by  setting  limits 
within  which  competitive  forces  must  work.  The  first  group  of 
thinkers  take  the  socialistic  view  and  call  for  government  ownership 
or  at  least  for  direct  government  management.  The  second  group 
are  still  in  effect  believers  in  the  laissez-faire  principle,  and  think  to 
restore  it  by  destroying  monopoly.  The  third  group  also  are  still 
faithful  to  their  belief  in  the  efhcacy  of  competition  but  would  restrict 
its  field  of  operation  at  the  bottom  so  as  to  prevent  industrial  deg- 
radation. 

reservation,  in  state  constitutions  or  statutes,  of  the  power  to  repeal  or  amend  corporate 
charters.  These  reservations,  while  of  considerable  value,  have  not  been  entirely  effective 
to  safeguard  the  public  interest.  A  corporation  may  be  killed,  but  its  pri\ilec:es  usually 
survive  its  death  and  inure  to  the  benefit  of  the  incorporators.  A  curious  example  of  the 
far-reachinf?  influence  of  this  decisicn  is  found  in  Muhlker  vs.  N.Y.  and  Harlem  R.R.  Co., 
ig7  U.S.  544,  571.  AccordinK  to  this  and  other  similar  cases,  a  state  judicial  decision 
merely  declaring  the  law  or  interpreting  a  constitution  or  statute,  may  be  held  to  be  a  vio- 
lation of  the  prohibition  forbidding  a  state  to  "pass  any  .  .  .  law  impairing  the  obligation 
of  contracts."  See  also  an  article  by  W.  F.  Dodd  on  "  Impairment  of  the  Obligation  of  Con- 
tracts by  State  Judicial  Decisions,"  in  Illinois  Lavj  Review,  October,  1909. 


26     THE    CHANGING   CONCEPTIONS   OF   PROPERTY 

A  centralizing  tendency,  that  is,  a  departure  from  the  principle 
of  individual  liberty  and  a  return  to  the  principle  of  authority,  is 
to  be  seen  in  many  if  not  all  domains  of  thought  at  the  present  time. 
Therefore,  to  understand  properly  what  is  going  on  in  industrial  life 
we  need  to  look  at  the  change  that  is  going  on  in  other  life  spheres. 
The  terms  laissez-faire  and  competition  are  commonly  used  to  describe 
the  policy  more  properly  called  economic  liberalism.  But  economic 
liberalism  is  more  than  a  political  platform  or  an  economic  formula. 
It  is  a  system  of  culture  that  has  given  character  to  the  life  of  a  great 
people  for  more  than  two  centuries.  It  is  a  superstructure  erected 
on  the  principle  of  personal  liberty  in  religious  and  political  matters. 
The  17th  century  was  an  era  of  religious  contest  that  resulted  in  the 
establishment  of  ecclesiastical  independence,  which  in  turn  carried 
the  rule  of  individualism  to  constitutional  and  political  emancipation. 
Once  established  in  religion  and  politics,  the  principle  of  personal  in- 
dependence found  its  way  into  economic  conduct,  and  the  system  was 
thereby  made  complete.  Just  as  in  its  upbuilding  it  was  closely 
connected  with  personal  liberty  in  other  spheres  of  life,  so  the  present 
alleged  breakdown  of  competition  —  the  principle  of  personal  liberty 
in  economic  life  —  and  the  alleged  restoration  of  the  principle  of  au- 
thority finds  its  counterpart  in  the  movement  towards  church  unity, 
uniformity  of  creed,  the  extension  of  state  as  against  local  authority 
over  education,  the  extension  of  the  federal  principle  in  politics,  and 
the  widening  censorship  of  morals.  The  application  of  the  authori- 
tarian principle  is  being  made  in  these  lines  for  reasons  quite  similar 
to  those  that  are  causing  its  application  in  industrial  affairs.  The 
excesses  of  the  personal  liberty  system  in  morals,  religion  and  literature, 
have  produced  results  that  are  shocking  the  sensibilities  and  shattering 
the  ideals  of  multitudes  of  people.  Hence,  the  demand  for  control. 
In  politics  the  extreme  application  of  the  principle  of  local  government 
has  rendered  ecjuity,  justice,  and  efficiency  impossible  in  a  multitude 
of  ways.     Hence,  the  demand  for  state  and  federal  control. 

Under  no  system  of  government  regulation  of  conduct,  however 
extensive  or  intensive,  has  competition  or  personal  initiative  been 
entirely  absent,  unless,  indeed,  under  a  system  of  slavery;  and  at 
no  time,  under  the  most  extended  system  of  competitive  action,  has 
it  been  possible  to  do  away  entirely  with  government  supervision  and 
regulation.  Even  among  the  English-speaking  peoples  in  the  past 
two  centuries,  when  the  laissez-faire  aspects  of  economic  liberalism 
have  seemed  to  predominate,  it  has  not  been  possible  to  get  on  without 
government  regulation  and  supervision.  The  reason  is  that  the  knowl- 
edge and  resources  underlying  any  political  and  social  system  are 
constantly  changing.  Whether  the  principle  of  personal  liberty, 
expressed  through  competition,  or  the  principle  of  authority,  expressed 
through  government  regulation,  shall   be  the  dominating  principle 


AND  THE  FUNCTIONS  OF  GOVERNMENT     27 

of  civilization  at  a  particular  period,  depends  on  which  one  of  them  is 
likely,  under  existing  conditions  of  knowledge  and  resources,  most 
largely  to  promote  welfare.  When  evils  flow  from  the  too  extensive 
application  of  the  prevailing  principle,  or,  when,  in  new  circumstances, 
it  is  less  productive  of  welfare,  emphasis  is  gradually  shifted  until 
the  other  principle  occupies  the  foreground  and  becomes  the  dominat- 
ing force.  Such  is  the  situation  now.  Conditions  have  changed  so 
that  the  necessity  and  value  of  regulation  are  emphasized  again. 
The  regime  of  personal  freedom  of  competition  under  the  conditions 
of  rapid  scientific  discovery  and  material  growth  has  failed  to  preserve, 
or  perhaps  to  produce,  the  equality  necessary  for  success  among  com- 
petitors. Growing  population,  the  development  of  vast  resources, 
the  great  size  of  units  of  industry,  have  made  the  application  of  the 
competitive  principle  in  many  ways  impracticable.  Competition 
has  degenerated  at  many  points  from  a  struggle  between  equals  to 
an  exploitation  of  the  weak  by  the  strong.  Industry  has  been  swal- 
lowed up  by  industry  until  in  many  lines  a  practical  monopoly  exists, 
so  that  prices,  wages,  terms  of  employment,  and  the  welfare  of  large 
nurribers  of  people,  are  in  the  control  of  comparatively  few.  The 
benefits  of  the  common  heritage  of  natural  resources  have  passed  too 
largely  from  the  people  at  large.  On  all  sides  we  find  private  monop- 
olies and  a  natural  system  of  capitalistic  industry,  involving  large 
control  of  the  opportunity  for  liveliliood  for  the  many.  These  evils 
have  been  produced,  under  conditions  favorable  to  the  acquisition  of 
great  wealth  and  its  massing  under  the  corporate  principle,  by  a 
system  that  gave  the  world  a  "democratic  constitution,"  "the  same 
law  for  all,"  "toleration,"  "capitalistic  competition,"  "individual 
initiative,"  and  the  other  benefits  of  liberalism.  In  more  general 
terms,  the  causes  for  the  extension  of  government  control  are:  the 
ill-doing  of  some  under  the  competitive  system  ;  our  desire  for  rapid 
national  development,  which  led  us  to  give  large  powers  to  those  who 
were  to  assume  the  risks  of  frontier  promotion  —  powers  which,  then 
innocuous,  have  now  become  dangerous  — ;  a  demand  for  a  better 
standard  of  li\-ing  by  the  great  body  of  the  working  class,  who  are 
asking  with  some  show  of  reason  what  the  advances  in  science  and 
industry  have  done  for  them.  Moreover,  there  is  a  feeling  of  resent- 
ment of  control  by  others  of  their  opportunity  to  make  a  living. 

The  demand  for  state  regulation  either  for  the  purpose  of  restoring 
the  competitive  principle  in  industry,  or  frankly  supplanting  it  with 
the  principle  of  authority,  finds  some  justification,  too,  in  the  belief, 
not  altogether  ill  founded,  that  the  economic  evils  of  great  industry 
have  arisen  in  part  from  the  treatment  of  the  modern  form  of  the  cor- 
poration by  our  courts  of  law.  They  have  given  it  in  a  measure  the 
attributes  of  a  natural  person,  without  imposing  upon  it  the  conse- 
quences of  personal  responsibility.     Hence,  it  has  frequently  been 


28    THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

impossible  to  reach  the  misdeeds  of  individuals  because  of  their  attri- 
bution to  non-personal  agents.  Penal  remedies  and  preventive  measures 
alike  have  been  often  ineffective  to  protect  the  public.  Consciousness 
of  this  evil  is  seen  in  the  demand  for  holding  directors  of  coq:)orations 
to  personal  responsibility  for  the  acts  of  the  corporation,  and  in  the 
movement  for  the  disruption  of  "corporations  of  corporations." 

From  all  these  causes  arises  the  demand  for  government  protection 
for  the  weak  in  industry  ;  and  some  people  appear  to  think  that  unless 
the  right  to  make  a  living  is  in  a  reasonable  measure  provided,  the  next 
step  may  be  an  attack  on  the  institution  of  private  property  itself. 
In  consequence,  "  to-day  a  great  economic  movement  is  going  on  which 
aims  at  reorganizing  the  entire  industrial  system  from  the  social 
standpoint."  The  call  is  for  the  state  to  look  after  the  conditions  of 
living  and  work  of  workers,  the  management  of  prices  and  output  of 
large  enterprises,  or  to  take  them  over  and  thereby  free  the  many 
from  a  virtual  economic  control  of  the  few,  and  reestablish,  supposedly 
for  all,  a  proper  standard  of  welfare. 

An  explanation  of  the  establishment  of  economic  liberalism  as  a 
system,  in  the  extreme  form  in  which  it  has  existed  for  more  than  a 
century,  is  found  in  the  abnormal  condition  of  the  four  centuries 
succeeding  the  discovery  of  America.  Since  that  discovery  the  life 
of  the  world  has  been  abnormal  in  the  sense  that  it  has  been  in  a  state 
of  unstable  equilibrium  because  of  the  existence  of  opportunities  for 
personal  initiative,  personal  gain,  and  individual  expansion  under 
conditions  that  yielded  larger  rewards  than  ever  before.  Economic 
pressure  in  the  old  world  could  be  relieved  by  overflow  into  the  new 
world.  The  great  advantage  that  came  from  this  situation  is  now  re- 
duced by  the  substantial  occupation  of  this  continent.  The  fact 
that  our  continent  is,  in  the  present  stage  of  the  arts,  substantially 
occupied,  indicates  that  the  world  is  about  to  return  to  a  more  stable 
economic  equilibrium.  The  development  of  the  industrial  evils  of 
to-day  and  the  consequent  demand  for  regulation  are  simply  an 
unconscious  acknowledgment  that,  all  things  considered,  we  have 
reached  in  this  country  a  stage  of  relatively  diminishing  returns 
in  our  economic  activity.  It  is  a  recognition  of  the  truth  of  the  law 
of  diminishing  returns  and  of  the  Malthusian  doctrine  of  population, 
that  unless  the  arts  progress  more  rapidly  than  population  there  is 
bound  in  time  to  b.e  a  relative  pressure  of  population  on  subsistence. 

Man  is  so  constituted  that  when  he  feels  the  evils  of  an  existing 
system  he  is  likely  to  adopt  measures  of  reform  which  will  produce 
evils  as  great  as  those  he  is  seeking  to  remedy.  That  danger  exists 
now.  We  need  to  look  very  closely  at  the  tendency  towards  the  ex- 
tension of  the  authority  of  government  into  the  details  of  our  economic 
life.  The  principle  of  competition,  the  system  of  economic  liberalism, 
has  been  too  helpful  to  the  progress  of  mankind  to  be  given  up  alto- 


AND   THE   FUNCTIONS   OF   GOVERNMENT  29 

gether.  It  has  become  an  enduring  part  of  our  civilization  and  philos- 
ophy of  life.  We  cannot  deny  that  the  competitive  system  has  pro- 
moted liberty  and  welfare,  initiative  and  perseverance,  industry 
and  success,  wealth  and  culture,  an  abundance  that  has  relieved 
poverty,  has  exploited  to  human  benefit  the  resources  of  nature  more 
abundantly  than  ever  before,  has  enlarged  knowledge,  has  pro\'ided 
for  the  possibility  of  a  greatly  increased  population,  and,  generally, 
has  uplifted  the  life  of  the  people.  No  system  which  will  depri\e 
mankind  of  these  advantages  is  likely  to  promote  welfare  unless  it 
supplies  other  motives  to  the  same  results.  For  competition  has 
been  a  developing  force,  even  if  it  has  failed  somewhat  as  a  controlling 
one.  The  motive  power  to  action  is  of  more  importance  in  the  long 
run  than  the  regulation  of  action. 

In  order  to  judge  clearly  the  reasonableness  of  this  demand  for  wider 
government  control  of  economic  life,  and  possible  results  of  acquies- 
cence in  it,  we  must  recall  for  a  moment  the  ultimate  purpose  of 
government.  It  is,  undoubtedly,  the  promotion  of  the  welfare  of  the 
people  who  organize  it.  In  the  words  of  Justice  Gray,"  The  prosecution 
of  the  safety,  health,  the  morals,  good  order  and  the  general  welfare 
is  the  chief  end  of  government,"  and  the  general  welfare  includes  pro- 
tection of  opportunity  to  make  a  living.  This  is  not  a  new  maxim 
in  the  jurisprudence  of  the  English-speaking  peoples.  The  system  of 
personal  liberty  and  the  system  of  government  control,  or  any  com- 
bination of  them,  has  always  had,  and  must  always  have,  as  its  ulti- 
mate aim,  among  these  peoples,  the  establishment  of  welfare.  All 
social  institutions,  including  the  system  of  private  property,  are 
encouraged,  or  permitted,  for  this  end.  As  Justice  Bruce  of  the 
Supreme  Court  of  North  Dakota  has  put  the  matter:  "It  can  now 
be  safely  said  that  the  courts  and  the  public  generally  have  come 
to  see  and  to  hold  that  a  right  to  property  and  liberty  should  never 
be  guaranteed  in  matters  and  things  which  are  injurious  to  the  public 
health,  the  public  welfare,  or  the  public  morality,  or  even  to  the  con- 
venience of  the  public  as  a  whole." 

As  we  have  seen,  the  call  for  the  application  of  the  power  of  govern- 
ment assumes  several  forms.  Some  call  upon  it  to  restore  the  com- 
petitive principle  by  breaking  up  large  industries,  and  so  to  regulate 
business  that  competition  will  operate  within  certain  assigned  limits. 
This  is  the  neomercantilism  that  is  sweeping  over  the  world.  Some 
call  upon  it  to  assume  that  competition  as  a  regulative  force  is  dead, 
and  therefore  to  permit  monopoly  under  supervision.  Others  insist 
that  since  competition  is  dead  and  monopoly  established  the  govern- 
ment itself  shall  take  over  and  manage  the  greatest  of  these  monop- 
olies.    This  is  the  demand  of  the  socialists. 

It  is  not  worth  our  while  to  consider  the  last  proposal.  There  is 
no  evidence  worth  considering  that  the  American  people  have  yet 


30     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

reached  the  point  where  they  desire  the  establishment  of  the  socialistic 
state.  The  principles  of  individual  liberty  and  the  rights  that  have 
been  established  upon  them  through  the  long  struggle  of  four  centuries 
will  not  be  abandoned.  Economic  liberalism  in  the  large  sense  is 
and  will  remain  a  living  faith  among  the  English-speaking  peoples, 
even  though  they  may  see  fit  to  establish  what  is  called  the  new 
"social  state." 

It  is  impossible,  of  course,  to  discuss  now  all  the  projects  put  up, 
either  for  the  complete  restoration  of  competition,  or  for  its  partial 
restoration  under  government  regulation.  I  invite  your  attention, 
therefore,  to  a  few  of  the  proposed  lines  of  action.  It  is  urged,  first, 
that  the  government  promote  welfare  by  general  social  legislation ; 
second,  that  the  government  regulate  wages,  particularly  by  estab- 
lishing a  general  minimum  wage ;  third,  that  the  government  regulate 
prices,  particularly  in  those  articles  that  may  be  regarded  as  the  prod- 
ucts of  monopolistic,  or  partly  monopolistic,  industries ;  fourth, 
that  the  government  determine  in  some  way  the  form  and  size  of 
business  organizations ;  fifth,  that  the  action  of  government  be  con- 
fined to  supervision  of  business  as  it  is  carried  on  in  order  to  prevent 
infractions  of  the  law  and  give  full  publicity  to  the  methods  of  so-called 
"big  business "  ;  and  finally,  that  the  right  of  society  in  great  accumu- 
lations of  property  shall  be  more  clearly  defined  and  •enforced  either 
by  taxation  or  other  means. 

The  proposal  for  what  is  called  welfare  legislation,  for  such  pur- 
poses as  the  prevention  of  accidents,  sanitary  conditions  of  work, 
due  limitation  of  hours  of  work,  the  protection  of  women  and  children 
in  industry,  and  all  similar  legislation,  has  long  passd  out  of  the  stage 
of  debate.  Formerly  governments  busied  themselves  in  enacting 
labor  laws  against  labor.  Now  they  busy  themselves  in  the  enact- 
ment of  laws  interfering  with  labor  in  the  interest  of  labor.  The 
principle  of  this  legislation  is  accepted,  however  men  may  differ  about 
details. 

When  we  come  to  the  proposition  to  fix  a  minimum  wage,  we  are 
confronted  with  more  debatable  questions.  In  so  far  as  the  wages 
actually  paid  in  so-called  sweated  and  parasitic  industries  are  below 
what  the  employer  could  afford  to  pay  while  still  making  a  proper 
profit  —  in  so  far,  in  other  words,  as  they  are  due  to  exploitation  — ; 
in  so  far  as  wages  paid  are  insufficient  to  afford  a  decent  living  in  any 
industry  in  which  profits  are  large  from  some  monopolistic  advantage ; 
—  in  short,  in  all  cases  in  which  wages  are  below  what  is  necessary 
for  a  decent  living  in  any  employment  because  of  "exploitation"  — 
there  can  be  but  one  opinion  of  the  desirability  of  insisting  upon  a 
minimum.  It  would  be  a  mistake,  however,  either  to  insist  upon  a 
minimum  wage  in  all  industries,  or  to  compel  the  payment  of  a  mini- 
mum wage  which,  as  a  matter  of  fact,  is  more  than  the  value  pro- 


AND  THE  FUNCTIONS  OF  GOVERNMENT    31 

duced  by  the  person  receiving  it  if  the  returns  to  entrepreneur  and 
capitalist  are  but  fair,  or  to  insist  upon  a  minimum  wage  in  any  case 
without  providing  for  its  constant  readjustment.  To  justify  these 
statements  we  must  consider  some  of  the  effects  of  such  an  action.  In 
the  discussion  I  repeat  that  I  am  leaving  out  all  cases  of  mere 
exploitation,  assuming  that  in  these  a  compulsory  standard  is 
economically  justifiable. 

If  a  minimum  wage  is  established  larger  in  amount  than  the  prod- 
uct of  the  marginal  workers,  they  are  bound  to  be  thrown  out  of 
work.  It  is  easy  to  say  that  if  an  industry  is  not  able  to  pay  a  "living 
wage"  it  had  better  not  exist.  But  a  "living  wage"  is  a  very  variable 
thing,  and  the  fact  that  some  people  are  living  on  the  wage  they  get 
may  be  regarded  as  evidence  that  to  them  it  is  a  living  wage,  although 
not  a  desirable  living  wage.  The  c^uestion  to  be  considered  is  not 
whether  such  an  industry  is  worth  while,  but  whether,  if  we  by  election 
abolish  it,  those  who  are  thrown  out  of  work  can  find  other  employ- 
ment at  as  good  or  better  wages.  It  is  difficult  to  see  where  they  would 
find  it  if,  in  economic  terminology,  they  are  "the  marginal  workers," 
and  are  already  getting  what  they  produce. 

The  imposition  of  a  minimum  wage  under  such  circumstances  would 
make  it  necessary  for  employers  in  many  cases  to  raise  the  margin  of 
industry  and  discharge  their  present  marginal  workers.  Otherwise 
the  business  would  not  be  profitable.  This  is  only  another  way  of 
saying  what  has  already  been  said,  that  insistence  upon  the  minimum 
wage  would  doubtless  reduce  to  idleness  all  below  the  new  margin, 
unless,  indeed,  as  might  happen  in  some  cases,  the  improvement  in 
the  standard  of  living  of  the  lowest  workers  increased  their  efficiency, 
or  unless  the  imposition  of  the  additional  burden  on  industry  stimu- 
lated the  discovery  of  new  methods  of  resources.  In  the  one  case  we 
should  have  an  increase  of  productivity  of  labor ;  in  the  other,  of 
capital.  In  either  case  the  industry  could  pay  the  wage  imposed. 
But  we  could  not  hope  that  such  a  result  would  be  g^ineral. 

Looking  at  the  matter  from  another  angle,  a  minimum  wage  which 
was  not  earned  at  the  margin  would  reduce  profit  or  interest,  or  both, 
and  react  on  the  accumulation  and  investment  of  capital.  In  time 
there  would  be  inevitably  a  slackening  of  industry  and  a  reduction 
of  employment.  I  see  no  logical  escape  from  the  conclusion  that  a 
general  minimum  wage„or  a  minimum  wage  imposed  widely,  if  it  were 
higher  than  the  product  of  the  marginal  worker,  would  act  to  curtail 
industry,  check  accumulation  and  investment  and  induce  unemploy- 
ment. 

Moreover,  we  must  remember  that  if  the  state  insists  upon  a  mini- 
mum wage  and  guarantees  it,  it  also  should  guarantee  efficiency. 
There  is  no  more  justice  in  compelling  the  emjiloyer  or  investor  to 
abandon  his  profit  or  interest,  if  it  is  only  legitimate  in  amount,  in 


32     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

order  to  raise  wages  than  there  is  in  permitting  unduly  low  wages  to  be 
paid  in  order  to  increase  profit. 

Any  effort  of  the  government  to  regulate  prices,  except  to  see  that 
they  are  not  monopolistic  or  are  not  fixed  by  agreement  among  other 
agents,  is  open  to  criticism  for  reasons  somewhat  similar  to  those  given 
against  the  minimum  wage  proposition.  There  is  no  more  economic 
reason  for  fixing  prices  to  enable  labor  to  get  a  fair  wage  or  the  con- 
sumer to  get  a  "fair  price"  than  there  is  to  fix  prices  in  order  to  enable 
the  investor  to  get  a  "fair  interest."  There  may  be  reasons  for  doing 
both,  if  it  were  practicable.  But  the  practicability  is  doubtful  because 
of  the  complexity  and  changeableness  of  the  factors  involved.  The 
government  and  its  agents  have  no  means  of  determining  beforehand 
the  effects  of  any  particular  line  of  action  on  prices.  They  could  not 
fix  prices  fair  to  investors,  workers,  and  consumers  without  knowing 
costs  and  conditions  of  markets  and  a  multitude  of  other  things  which 
are  changing  from  day  to  day,  and  which,  if  they  could  be  discovered  and 
set  down  in  figures,  would  be  beyond  the  understanding  of  anybody 
but  the  expert  in  business.  Nor  could  they  allow  for  foreign  compe- 
tition. The  attempt  would  very  likely  check  accumulation  and  in- 
vestment. We  have  a  good  illustration  of  the  possible  effects  of  such 
an  attempt  in  the  railroad  situation  in  the  United  States  at  present. 

If  the  application  of  the  minimum  wage  doctrine  and  price  regula- 
tion in  any  large  way  should  curtail  industry  and  increase  unemploy- 
ment, the  government  would  be  called  on  to  provide  for  an  increasing 
number  of  people  out  of  work.  The  number  thus  to  be  taken  care  of 
would  doubtless  grow  in  time,  not  only  from  industrial  causes,  but 
from  the  stimulation  to  population  which  would  come  from  a  lowering 
of  the  moral  fiber  of  the  people.  For  the  easier  it  is  made  for  one 
part  of  society  to  get  a  living  at  the  expense  of  another  part  of  society, 
the  larger  will  be  the  demand  for  it  and  the  lower  the  moral  tone  of 
those  who  demand  it.  A  recent  illustration  of  this  fact  is  found  in 
the  effects  of  Germany's  thirty  years'  experience  with  insurance  against 
sickness  and  accidents.  Cheating,  malingering,  and  even  a  certain 
physical  degeneration,  have  become  widespread,  so  that  many  thought- 
ful people  are  alarmed  at  the  weakening  of  the  moral  fiber  of  the  nation, 
and  the  sapping  of  its  physical  vigor. 

From  the  point  of  view  of  economic  theory,  the  proposals,  especially 
with  reference  to  the  minimum  wage,  involve -a  new  ethics  and  a  new 
economic  law  of  distribution.  Broadly  speaking,  every  theory  of 
wages  is,  first,  an  explanation  of  existing  conditions,  and,  second,  an 
attempted  justification  of  them.  Each  theory  has  been  accepted  so 
long  as  its  practical  result  was  consonant  with  the  pre\ailing  ideal  of 
the  general  welfare,  which  means  acceptable  to  the  multitude  or  group 
or  class  in  power. 

The  productive  theories   have   led  us   to   say  that    each   partici- 


AND   THE   FUNCTIONS   OF    GOVERNMENT  ss 

pant  in  production  is  entitled  to  and  gets  what  he  produces,  for  the 
reason  that  this  has  seemed  to  us  good  ethics.  Now  society,  in 
estabhshing  a  standard  of  wages,  would  assume  the  theory  that 
each  must  get  what  is  necessary  to  enable  him  to  attain  a  living 
conformable  to  the  dignities  and  requirements  of  citizenship.  The 
proposal  is  not,  "to  each  one  what  he  produces,"  but,  "to  each 
one  what  he  needs,"  on  a  minimum  basis.  The  British  Minimum 
Wage  Law  for  miners  frankly  recognizes  this  fact.  The  ideal  of  the 
federation  of  miners  was  defined  by  its  representative  in  these  words : 
"What  their  demands  stipulated  was  that  when  a  man  went  into  the 
pit  to  work  ...  he  should  be  assured  of  a  day's  wage,  fixed  and  agreed 
to,  and  if  this  was  not  granted  it  should  be  recoverable  through  a 
court  of  law.  No  matter  what  the  collier's  failure  or  difficulty  might 
be  in  earning  his  money,  whether  it  be  through  faults,  breakages  in 
machinery,  inundations  of  water,  shortage  of  tubs,  overcrowding,  or 
a  walk  of  long  distances  to  the  face  ;  if  he  was  not  addicted  to  idleness, 
then  he  should  be  allowed  a  fixed  minimum  wage."  "The  descending 
of  the  pit  and  the  remaining  at  the  coal  face  to  do  a  day's  work  shall 
establish  the  right  of  the  workman  to  receive  the  average  wage  of  the 
district." 

If  this  policy  should  become  general,  the  ultimate  result  would  be 
the  elimination  of  those  who  cannot  earn  the  minimum  and  the  rising 
of  the  margin  of  production  for  labor  to  a  point  where  the  product  of 
labor  will  be  equal  to  the  minimum  wage  fixed  by  law.  In  other  words, 
we  will  have  a  return  to  the  theory  of  specific  productivity.  No 
other  result  is  possible. 

In  passing  from  my  criticism  of  these  proposals,  however,  I  would 
remind  you  that  it  does  not  involve  the  regulation  of  wages  and  prices 
where  these  are  themselves  subject  to  control  by  any  class  to  the  detri- 
ment of  another.  Aside  from  this  limitation  the  wisdom  oi  govern- 
ment interference  in  these  directions  is  more  than  doubtful. 

There  is  ground  for  more  favorable  comment  on  proposals  that  the 
government  shall,  within  limits,  determine  the  form  of  organization 
and  the  size  of  business  enterprises.  Industries  which  are  monopolistic 
in  their  character  are  now  by  general  consent  regarded  as  properly 
subject  to  government  supervision.  It  is  not  necessary  here  to  discuss 
the  methods  or  extent  of  this  supervision  further  than  to  say  that  if 
it  is  to  be  permanently  successful  it  must  aim  to  protect  the  interests 
of  wage  earners,  the  investing  public,  and  the  general  public,  alike. 
It  must  not  permit  undue  profit  from  excessive  rates,  or  from  ex- 
ploitation of  labor.  In  this  field,  however,  the  limits  and  methods  of 
government  intervention  are  being  slowly  worked  out,  although,  of 
course,  with  considerable  friction  and  many  jars.  The  regulation  of 
public  utilities  and  industries  of  similar  economic  character  is  an 
illustration  in  point. 


34     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

Supervision  may  take  the  form  either  of  inspection  and  pubHcity 
of  procedure,  or  of  direct  attempts  to  influence  the  form  of  organiza- 
tion. The  former  method  has  been  recommended  by  President 
Taft's  Railroad  Securities  Commission,  and  wherever  it  has  been 
applied  its  results  have  been  good,  even  if  they  have  not  cured  all  the 
evils.  But  we  may  reasonably  ask  for  more  than  this,  at  any  rate 
in  many  cases.  The  prohibition  of  what  we  may  call  interlocking 
directories,  of  stock  watering,  rebates,  price  discrimination,  and  the 
holding  of  the  stock  of  one  corporation  by  another,  and  the  elimination 
or  limitation  of  holding  companies,  are  some  of  the  things  that  may  well 
be  accomplished. 

Aside  from  industries  that  are  clearly  monopolistic  by  nature  the 
whole  aim  of  government  interference  should  be  to  establish  conditions 
which  will  induce  healthy  competition.  The  government  should 
attempt  to  determine  what  constitutes,  under  existing  conditions,  an 
efficient  imit,  or  an  efficient  size,  of  a  business.  It  has  been  claimed 
for  the  trusts  that  they  were  more  efficient  as  producers  and  distribu- 
tors than  similar  enterprises  in  the  same  line.  I  do  not  feel  that  this 
claim  has  been  established,  and  think  that  there  are  signs  that  it  is 
largely  untrue.  The  economies  of  big  business  have  been  secured  at 
an  economic  and  social  cost  that  has  not  been  fully  evident  or  fully 
understood.  There  is  reason  for  thinking  that  the  dissolution  of  the 
tobacco  trust  has  already  recovered  to  society  some  valuable  entre- 
preneur's talent  which  was  being  suppressed  by  the  discharge  of 
clerical  duties  under  the  trust,  and  has  induced  competition  among 
those  of  this  order  of  business  talent  with  some  resulting  shaving  of 
prices  to  the  consuming  public.  Even  if  it  were  true  that  the  biggest 
business  is  the  most  efficient  in  the  sense  that  the  cost  of  its  unit  output 
is  lowest,  it  does  not  follow  that  we  should  permit  that  system  of  in- 
dustry to  exist.  For  we  can  tolerate  only  that  system  which,  what- 
ever its  mere  economic  merits,  is  not  likely  to  destroy  political  liberty 
or  economic  opportunity.  "The  best  size  of  unit  for  general  welfare 
is  the  thing  for  us  to  establish,  not  necessarily  the  one  which  has  the 
largest  output  or  the  lowest  unit  cost." 

Moreover,  there  is  justification  for  fixing  a  maximum  financial 
unit  of  business,  aside  from  the  question  of  greatest  operating  effi- 
ciency. For  even  if  competition,  working  as  it  does  with  consider- 
able friction,  fixes  a  price  that  is  a  fair  return  of  capital  invested, 
this  is  not  enough  for  the  protection  of  the  public  if  the  capital  invested 
becomes  larger  than  is  adequate  to  perform  the  total  service  needed. 
If  it  goes  beyond  this,  a  "fair"  return  necessitates  a  price  larger  than 
the  value  of  the  product  to  the  community,  and  economic  friction, 
to  say  nothing  of  monopolistic  control,  sometimes  makes  it  possible 
to  secure  such  a  price. 

The  fifth  proposal  in  the  program  of  government  extension  policy 


AND   THE   FUNCTIONS   OF   GOVERNMENT  35 

is  the  imposition  of  greater  burdens  upon  the  accumulated  wealth. 
This  means  a  renewed  emphasis  on  the  social  origin  and  character  of 
property  and  therefore  on  the  right  of  limiting  it,  not  only  to  prevent 
unjust  accumulation,  but  any  accumulation  which  in  character  or 
amount  threatens  the  welfare  of  society.  This  question  is  before  the 
country  now  in  the  suit  against  the  Harvester  Trust.  According  to 
the  prosecution  in  this  case,  the  organization  and  power  of  the  trust 
are  such  that  "if  the  International  Harvester  Company  were  disposed 
to  exercise  the  power  its  enormous  wealth  gives,  and  if  it  were  left 
unrestrained  to  do  so,  it  could  drive  every  competitor  it  has  from  the 
field."  It  is  necessary  to  notice  that  there  is  no  new  legal,  ethical,  or 
social  principle  involved  in  this  doctrine,  although  the  wisdom  of 
extending  the  principle  at  present  may  be  an  open  question. 

Some  general  conseciuences  of  these  proposals  must  not  pass  un- 
noticed. Undoubtedly,  a  certain  amount  of  good  can  be  done  by 
proper  supervision  to  prevent  the  oppression  of  the  weak  by  the  strong 
and  the  impairment  of  the  public  welfare.  It  may  be  true  that,  as 
one  writer  puts 'the  matter,  the  present  movement  is  an  attempt  by 
the  community  to  resume  sovereign  power  in  order  to  conserve  the 
right  of  the  individual  to  make  his  living.  But  bureaucratic  supervision 
can  never  be  a  permanent  substitute  for  proper  standards  of  righteous- 
ness among  men  in  their  dealings  with  one  another.  We  may  have  an 
honest  and  efficient  ofhcialdom  that  puts  the  common  weal  above 
corjDorate  and  personal  interest,  but  we  cannot  have  it  for  very  long. 
The  inherent  weakness  of  wide  and  intense  government  regulation  is 
its  lack  of  motive  to  take  advantage  of  new  conditions  to  further  prog- 
ress ;  whereas  the  inherent  strength  of  a  system  of  individual  initia- 
tive is  the  presence  of  that  motive. 

If  any  of  the  proposed  policies  is  to  win  final  success  in  improving 
the  condition  of  any  class  of  society,  or  of  all  classes,  it  can  do  so 
only  by  increasing  the  sense  of  responsibility  of  those  directly 
affected.  For  those  who  have  made  any  study  of  attempts  to  improve 
human  society  through  long  periods  must  feel  \'ery  deeply  "how  great 
is  the  ignorance  of  the  wise,  the  weakness  of  the  strong,  the  folly  of 
the  prudent  and  the  helplessness  of  the  well-meaning."  They  will 
realize  that  we  "cannot  sweep  away  any  one  thing  without  upsetting 
innumerable  other  things,  good,  bad,  and  indifferent." 

The  adoption  of  the  policies  that  we  have  been  discussing  may  mean 
a  period  of  comparatively  stationary  economic  life.  In  so  far  as  we 
clip  the  wings  of  motive  we  impede  rapidity  of  motion.  Yet  it  may 
be  well  sometimes  to  do  this.  For  abundance,  irrespective  of  distri- 
bution, will  not  necessarily  produce  welfare.  What  a  nation  may 
need  may  be  an  abundance  sufficient  for  social  welfare  according  to 
definite  ideals,  even  though  it  may  not  be  so  great  an  abundance  as 
with  different  ideals  might  be  obtained. 


36     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

It  is  true  that  progress  in  invention  and  discovery  may  still  go  on 
if  bureaucratic  oversight  should  check  industry.  It  will  do  so,  how- 
ever, only  if  a  sufficient  margin  of  advantage  is  left  with  the  enter- 
prising pioneer  in  the  future  as  in  the  past.  A  return  to  the  intensive, 
minute,  supervision  over  industry  which  prevailed  under  the  old 
mercantile  system  would  defeat  its  own  purpose.  Yet  it  is  hard  to  tell 
where  to  stop  when  once  we  use  the  arm  of  government  for  economic 
purposes.  It  is  doubtful  whether  in  this  country  the  public  will 
endure  the  menace  to  liberty  involved  in  very  intensive  supervision. 
It  is  doubtful  whether,  if  the  supervision  were  successful,  we  should  be 
better  of^  in  the  long  run,  and  we  should  have  lost  all  the  advantages 
that  have  accrued  to  us  under  the  great  system  of  economic  liberalism. 

Although,  then,  there  is  good  in  the  proposition  for  the  extension  of 
government  activity  into  business,  the  field  of  its  operation  must  be 
carefully  limited.  Can  we,  in  conclusion,  lay  down  briefly  some  of 
the  limits  within  which  it  should  be  confined  ? 

I  venture  to  suggest,  first,  that  reasonable  welfare  legislation,  as 
has  already  been  remarked,  is  accepted  by  the  American  public  as 
proper,  and  that  our  various  governments  may  concern  themselves 
with  extending  this  without  objection. 

In  the  second  place,  government  may  properly  attempt  a  delimita- 
tion and  regulation  of  industries  which  are  monopolies  by  nature.  It 
may  also  segregate  those,  if  any,  which  are  likely  to  be  most  serviceable 
to  the  public  and  to  their  owners  when  treated  as  monopolies.  Al- 
though there  is  room  for  difference  of  opinion  on  details,  the  principle 
is  generally  accepted  now  that  the  private  enterprises  which  commonly 
go  under  the  name  of  public  utilities  are  best  treated  as  monopolies 
to  be  carried  on  under  proper  reasonable  supervision. 

In  the  next  place,  the  government  may  properly  continue  its 
policy  of  compelling  the  trusts  to  dissolve  into  their  component 
industries  and  of  requiring  big  business  enterprises  to  resolve  them- 
selves into  units  of  the  most  efficient  size.  To  accomplish  this  pur- 
pose properly,  the  government  should  undertake  an  investigation  of 
what  constitutes  a  unit  of  greatest  efficiency  in  the  more  common  big 
businesses.  Having  determined  this,  the  law  should  prevent  the  or- 
ganization of  businesses  which  will  exceed  this  most  efficient  unit  in 
size  unless  the  advance  in  the  arts  makes  it  possible  to  prove  that  some 
larger  or  different  organization  is  better,  in  which  case  the  law  should 
be  adapted  to  the  new  conditions. 

Again,  the  utmost  publicity  compatible  with  the  rights  of  business 
should  be  given  to  the  transactions  of  corporations,  whether  monop- 
olistic or  other.  But  it  is  hard  to  justify  the  minuteness  of  the  in- 
quiries which  some  of  our  commissions  now  propose  into  various  lines 
of  business. 

In  the  next  place,  the  law  may  very  properly  forbid  agreements 


AND   THE   FUNCTIONS   OF   GOVERNMENT  2>7 

fixing  prices  by  producers  or  distributors  of  goods.  The  law  may 
further  properly  provide  a  minimum  standard  of  wages  for  industries 
in  which  labor  is  obviously  exploited.  Still  further,  few  will  object 
to  reasonable  increase  in  the  burdens  imposed  upon  great  aggregations 
of  wealth  for  the  general  welfare,  especially  when  these  aggregations 
of  wealth  have  come  from  sources  that  give  them  a  large  social  element. 

Finally,  the  attitude  of  our  courts  towards  the  character  and  acts 
of  corporations  needs  readjustment.  There  is  some  ground  for  be- 
lieving that  from  the  point  of  view  of  the  interests  of  society,  it  was  a 
mistake  to  give  corporations  the  attributes  of  personality.  In  any 
event,  there  is  a  demand  that  personal  responsibility  for  corporate  acts 
shall  be  fixed  upon  the  officers  in  such  ways  as  to  prevent  the  recur- 
rence of  some  of  the  evils  that  have  given  rise  to  the  hostility  towards 
corporations. 

One  inevitable  consequence  of  the  establishment  of  the  principle 
of  government  control  of  economic  life  must  not  be  lost  sight  of  even 
if  its  early  appearance  is  unlikely.  Regulation  by  a  government  which 
is  the  people,  for  the  people,  tends  to  be  regulation  of  the  people  by  a 
government  in  spite  of  the  people.  Regulation  of  industrial  life  in 
behalf  of  some  means  repression  of  the  activities  of  some  others. 
The  government,  as  such,  once  recognized  as  having  a  right  to  regulate 
economic  conditions,  will  be  pushed  by  the  ruling  class  or  classes 
towards  regulation  or  control  of  the  rights  of  others  in  politics,  religion, 
and  other  ways ;  for  economic  privileges  or  rights  cannot  crystallize 
into  custom  and  be  cast  into  law  in  behalf  of  some  as  against  others 
without  imposing  upon  the  "some"  corresponding  duties  which 
become  privileges  or  rights  of  the  "others."  This  process  means  a 
slow  crystallization  of  economic  status  and  the  production  of  classes 
in  society. 

These,  then,  are  the  principal  lines  of  proposed  wider  government 
activity  at  present  before  the  public,  in  this  country  and  in  England. 
Their  significance  is  far  reaching.  While  declaring  no  new  legal  prin- 
ciple, they  gave  a  different  color  to  accepted  doctrine.  The  emphasis 
is  now  to  be  put  upon  the  rights  of  the  community  in  private  property 
and  to  private  property,  rather  than  on  those  of  the  individual  owner. 
The  movement  means  that  the  acquirement  of  property  to  an  extent 
that  may  endanger  the  ])ublic  welfare  is  to  be  restricted.  Laws  should 
be  framed,  we  are  told,  to  care  for  the  worker  rather  than  for  industry. 
In  other  words,  the  new  movement  is  an  attempt  to  establish  by 
authority  the  individualism  — conditions  of  welfare  —  which  individ- 
ual action  itself  has  failed  to  achieve.  The  whole  movement  im- 
ports a  lessening  of  the  importance  of  private  property,  and  a 
strengthening  of  the  imyjortance  of  men  ;  an  emphasis  of  public  weal 
as  against  private  gain  ;  a  demand  for  more  equality  in  economic  con- 
ditions, and  greater  social  responsibility  for  wealth. 


38     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

BUSINESS   ENTERPRISE  AND   THE  LAW 

By  Gilbert  Holland  Montague,  of  the  New  York  Bar 

(From  the  North  American  Review,  November.  1910) 

From  the  end  of  the  Civil  War  until  the  passage  of  the  Interstate 
Commerce  Act  and  the  Sherman  Anti-Trust  Act,  popular  faith  in 
competition,  unhindered  by  governmental  interference,  continued 
practically  undisturbed.  "In  the  early  history  of  railroad  transporta- 
tion," said  Attorney-General  Moody,  later  Justice  of  the  Supreme 
Court  of  the  United  States,  in  his  annual  report  for  igo6,  "  the  practice 
of  rebating  was  common,  well  understood,  and  not  prohibited  by  any 
Federal  statute.  It  was  regarded  as  one  aspect  of  the  spirit  of  com- 
petition which  the  common  law  cherished."  The  last  century  con- 
ception of  competition  and  freedom  of  contract  and  absolute  indi- 
vidualism of  conduct,  unhampered  by  any  legal  restrictions,  was 
rooted  in  the  theory  of  the  Declaration  of  Independence  and  the  Con- 
stitution, and  fostered  by  the  tremendous  commercial  progress  which 
it  had  produced.  Against  this  principle,  the  Interstate  Commerce 
Act,  which  prohibited  private  bargaining  between  the  railroad  and 
the  shipper,  and  the  Sherman  Anti-Trust  Act,  which  forbade  the 
attainment  of  industrial  dominance,  toward  which  all  competition 
aimed,  seemed  incongruous  and  irrational  contradictions,  —  weapons 
pusillanimously  seized  by  the  industrially  unfit  against  their  superiors. 

The  spiritless  enforcement  of  these  statutes,  from  the  time  of  their 
enactment  until  1903,  shows  how  pharisaical  they  were  generally 
considered  by  the  community.  "A  careful  examination,"  to  quote 
again  from  Attorney-General  Moody,  "discloses  that  there  were  in 
those  years  seventy-nine  indictments  (under  the  Interstate  Commerce 
Act),  upon  which  the  Government  failed  in  sixty-two  and  succeeded 
in  seventeen.  No  sentences  of  imprisonment  were  executed  and  the 
total  fines  amounted  to  $16,376.  It  is  safe  to  say  that  these  penalties, 
distributed  over  many  years,  were,  as  deterrents  from  the  commission 
of  prohibited  offenses,  a  negligible  factor."  The  indifi"erent  enforce- 
ment of  the  Sherman  Anti-Trust  Act  was  still  more  conspicuous. 
Attorney-General  Olney,  in  his  annual  report  for  1893,  protested 
"that  as  all  ownership  of  property  is  of  itself  a  monopoly,  and  as  every 
business  contract  or  transaction  may  be  viewed  as  a  combination  which 
more  or  less  restrains  some  part  or  kind  of  trade  or  commerce,  any 
literal  application  of  the  provisions  of  the  statute  is  out  of  the  ques- 
tion." Reviewing  the  prosecutions,  brought  under  the  Sherman 
Anti-Trust  Act  during  this  period,  Attorney-General  Moody  stated : 
"From  the  date  of  the  enactment  of  the  law  to  the  beginning  of 


AND   THE   FUNCTIONS   OF   GOVERNMENT  39 

President  Roosevelt's  administration  in  1901,  sixteen  proceedings  were 
begun  and  have  been  concluded  —  five  of  them  indictments,  in  all  of 
which  the  Government  has  failed,  and  eleven  of  them  petitions  in 
equity,  in  which  the  Government  prevailed  in  eight  and  failed  in 
three.  .  .  ."  The  apathetic  enforcement  of  the  Interstate  Com- 
merce Act  and  the  Sherman  Anti-Trust  Act,  during  this  period,  was 
due  not  so  much  to  reluctance  on  the  part  of  the  prosecutors  as  to  the 
conviction  of  the  community  that  a  vigorous  enforcement  of  these 
statutes  was  contrary  to  the  approved  mode  of  business  competition. 

During  the  decade  immediately  succeeding  the  war  with  Spain, 
a  series  of  events  occurred  which  shook  this  long-cherished  popular 
belief.  Investigation  into  the  management  of  certain  railroads,  in- 
surance companies,  and  street  railways  revealed  startling  corruption 
and  dishonesty.  Newspapers  and  magazine-writers  attacked  methods 
of  business  competition  which  ]:)reviously  had  never  been  questioned. 
The  indignation  thus  engendered  stirred  depths  of  popular  conscience 
which  had  never  been  aroused  by  the  agitation  for  the  Interstate 
Commerce  Act,  nor  by  the  clamor  for  the  Sherman  Anti-Trust  Act. 
The  opinion  grew  that  business  competition,  at  least  in  some  of  its 
manifestations,  was  a  crude  and  unjust  force  in  the  social  economy. 

In  1903,  the  Roosevelt  administration  had  practically  only  two 
statutes  through  which  the  Federal  Government  could  exercise  any 
control  or  interference  with  competition.  These  statutes  were  the 
Interstate  Commerce  Act  and  the  Sherman  Anti-Trust  Act. 

In  response  to  increasing  popular  demand,  Congress  appropriated, 
in  1903,  $500,000  to  be  expended  by  the  Attorney-General  in  prosecu- 
tions under  these  statutes.  At  the  same  time,  acts  were  passed  facili- 
tating trials  under  these  statutes,  and  particularly  strengthening  the 
hands  of  the  Government  in  dealing  with  discriminatory  practices  of 
railroads.  The  Department  of  Commerce  and  Labor  was  created, 
and  invested  with  abundant  powers  to  investigate  large  business 
concerns  everywhere. 

In  1903,  the  Interstate  Commerce  Commission  stated  that  dis- 
criminatory practices  were  no  longer  characteristic  of  railroad 
operations,  and  that  never  before  had  the  law  been  so  strictly  observed. 

In  1905,  however,  came  the  revelations  of  the  collusion  between 
certain  freight  shippers  and  several  high  officials  of  the  Pennsylvania 
Railroad.  About  the  same  time  came  the  disclosures  regarding  con- 
spicuous breaches  of  trust  on  the  part  of  certain  officers  of  the  largest 
life-insurance  companies  in  the  country. 

Responding  again  to  popular  demand,  each  Federal  prosecuting 
officer  was  instructed,  in  a  circular  letter  from  the  Attorney-General, 
to  proceed  in  each  case  brought  to  his  attention  showing  a  violation 
of  the  Interstate  Commerce  Act  and  the  Sherman  Anti-Trust  Act. 
As  a  result,  seventy-seven  indictments  were  returned  under  the  In- 


40    THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

terstate  Commerce  Act,  upon  which  thirteen  corporations  and  seven- 
teen individuals  were  found  guilty.  The  corporations  were  fined 
in  sums  ranging  from  $15,000  to  $108,000  each,  and  the  individuals 
were  fined  in  sums  ranging  from  $1,000  to  $10,000  each.  During 
the  succeeding  year  several  sentences  of  imprisonment  were  inflicted, 
and  fines  aggregating  $416,125  were  imposed.  Equal  activity  was 
displayed  in  the  enforcement  of  the  Sherman  Anti-Trust  Act.  Pro- 
ceeding upon  the  construction  of  the  Act  which  the  Government  had 
successfully  applied  in  the  Northern  Securities  Case,  the  Government 
procured  the  dissolution  of  the  "  Beef  Trust,"  composed  of  Swift  &  Co. 
and  its  allied  concerns,  and  began  proceedings  against  the  General 
Paper  Company  and  its  associated  companies,  familiarly  called  the 
"Paper  Trust,"  and  against  various  combinations  in  the  grocery, 
beef,  lumber  and  transportation  business.  By  the  close  of  1906,  the 
Roosevelt  administration  had  a  record  of  twenty-three  proceedings 
commenced  under  this  Act,  seven  of  which  had  been  successfully  con- 
cluded and  the  rest  still  pending.  These  included  proceedings  against 
the  American  Tobacco  Company  and  several  other  corporations 
interested  in  the  tobacco  and  licorice  business,  against  thirty-one 
corporations  and  twenty-five  indi\'iduals  engaged  in  the  manufacture 
of  fertilizer,  against  the  Standard  Oil  Company  and  seventy  other 
corporations  and  individuals  concerned  in  the  manufacture  of  refined 
oil  and  petroleum  products,  and  against  combinations  in  transporta- 
tion, paper,  groceries,  elevators,  salt,  meat,  lumber,  dr^'goods,  oil, 
tobacco,  fertilizer  and  ice.  Before  the  close  of  the  administration 
thirty-seven  such  proceedings  had  been  begun  under  the  Sherman 
Anti-Trust  Act. 

The  activity  of  the  Federal  administration  was  exceeded  by  the 
zeal  of  the  State  Legislatures.  In  1899,  Texas  had  passed  laws  re- 
lieving persons  purchasing  goods  of  a  trust  from  liability  to  pay  the 
purchase  price,  and  requiring  every  corporation  that  owned  or  leased 
the  patent  of  a  machine  to  offer  such  machines  for  sale,  instead  of 
reserving  them  for  exclusive  use.  In  1905,  Arkansas  relieved  persons 
purchasing  goods  of  a  trust  from  liability  to  pay  therefor,  and  author- 
ized such  persons  to  recover  from  the  trust  any  money  or  value  piaid 
on  account  of  such  goods.  Arkansas  also  enacted  that  in  the  prose- 
cution of  any  trust  the  prosecuting  attorney  might  compel  any  non- 
resident to  appear  with  his  books  and  papers,  within  six  days  and  the 
necessar^^  time  required  to  travel ;  and  in  the  event  of  his  failure  to 
appear,  the  trust  was  made  liable  to  judgment  on  default.  In  1907, 
the  Governor  of  Texas  recommended  a  law  empowering  the  x^ttorney- 
General  to  have  "full  and  free  access  to  all  the  works,  plants,  offices, 
books,  vouchers  and  papers"  of  any  corporation  doing  business  in 
Texas  without  reference  to  whether  such  works,  offices  and  papers  were 
within  the  State  or  without  it.     Legislation  in  accordance  with  this 


AND  THE  FUNCTIONS  OF  GOVERNMENT     41 

recommendation  was  adopted,  with  the  added  provision  that  if  access 
to  works,  offices  and  papers  outside  the  State  were  denied,  judgment 
might  be  rendered  against  the  trust.  At  the  same  time,  Texas  in- 
creased the  penalty  for  violation  of  its  anti-trust  act  to  imprisonment 
for  ten  years.  Already  a  number  of  States  had  imposed  enormous 
penalties  upon  the  sale  of  commodities  at  less  than  the  "cost  of  manu- 
facture," or  at  a  price  greater  or  less  than  their  "fair  market  value," 
or  at  a  price  greater  or  less  than  such  commodities  were  sold  for  in  any 
other  place  "under  like  conditions."  These  penalties  were  fines 
varying  from  Si, 000  to  $10,000  and  terms  of  imprisonment  running 
from  one  year  to  ten  years.  In  1907  su.ch  statutes  had  been  enacted 
in  specially  drastic  form  in  Indiana,  Mississippi,  Arkansas,  Missouri, 
Minnesota,  North  Carolina,  Kansas,  Iowa,  South  Carolina,  Texas  and 
North  Dakota ;  and  similar  legislation  had  been  recommended  by 
the  Governors  of  California  and  Colorado. 

Meanwhile  the  railroads  had  not  escaped  attention.  In  1903, 
ten  States  enacted  statutes  giving  to  their  railroad  commissions  in- 
creased powers  to  fix  freight  and  passenger  rates  and  to  supervise  the 
details  of  operation.  These  States  were  Kansas,  Arkansas,  Florida, 
Missouri,  North  Carolina,  South  Carolina,  North  Dakota,  Texas, 
Virginia  and  Wisconsin.  In  1905,  the  powers  of  the  railroad  com- 
missions were  greatly  increased  in  Georgia,  Minnesota,  Illinois,  Cali- 
fornia, South  Carolina,  Kansas,  Indiana,  Washington  and  Wisconsin. 
In  1906,  Ohio,  Nebraska,  Georgia,  Louisiana,  South  Carolina,  Ken- 
tucky and  Wisconsin  increased  still  further  the  powers  of  their  railroad 
commissions.  In  1907,  railroad  commissions  were  either  created  or 
vested  with  increased  powers  in  Arkansas,  Florida,  Georgia,  Indiana, 
Iowa,  Kansas,  Minnesota,  North  Carolina,  Missouri,  North  Dakota, 
South  Dakota,  Alabama,  Colorado,  Montana,  Pennsylvania,  New 
York,  New  Jersey,  Nevada,  Michigan,  Nebraska  and  Oregon.  At 
the  same  time  statutes  of  more  arbitrary  character  w^ere  also  en- 
acted. In  1905,  the  Legislatures  of  Kansas,  Washington,  Missouri 
and  Oklahoma  passed  laws  fixing  rigid  regulations  regarding  freight 
rates,  car  service,  demurrage  and  storage  charges  upon  all  railroads 
operating  within  their  limits ;  and  North  Carolina  enacted  that  if  a 
consignee  claimed  damages  on  a  shipment,  and  the  claim  remained 
unpaid  for  sixty  days,  and  the  consignee  recovered  the  full  amount  by 
suit,  the  railroad  should  pay  a  penalty  of  fifty  dollars.  Florida  pre- 
scribed a  somewhat  similar  penalty  in  analogous  circumstances.  In 
1906,  Ohio,  Virginia  and  Maryland  adopted  laws  limiting  passenger 
rates,  except  in  minor  exceptions,  to  two  cents  per  mile.  Similar 
bills  were  adopted  in  at  least  nine  other  States.  Arkansas  enacted 
that  every  railroad  train  passing  through  a  town  within  half  a  mile 
of  the  State  line  should  stop  for  passengers,  unless  it  stopped  within 
three  hundred  feet  on  the  other  side  of  the  line ;   and  also  provided 


42     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

that  the  consif;nee  might  collect  any  damage  claim,  not  exceeding 
ten  dollars,  from  the  railroad  agent  at  the  destination,  provided  that 
he  presented  to  the  agent  an  itemized  and  verified  statement  of  the 
damage  within  three  days  after  the  goods  were  received ;  and  in  the 
event  that  payment  were  refused,  he  might  recover  treble  damages. 
Georgia  required  that  claims  for  damages  be  paid  by  the  railroad  within 
sixty  days  under  penalty  of  fifty  dollars  and  interest. 

In  1907,  the  passion  for  arbitrary  legislation  against  railroads 
became  almost  national.  Recommendations  for  the  statutory  regu- 
lation of  railroad  rates  were  made  by  the  Governors  of  Alabama, 
California,  Missouri,  Arkansas,  Colorado,  Kansas,  Massachusetts, 
Minnesota,  Nebraska,  North  Dakota,  West  Virginia  and  Wisconsin. 
Maximum  rates  for  passenger  traffic  —  generally  two  cents  a  mile  — 
were  urged  by  the  Governors  of  Indiana,  Iowa,  Kansas,  Michigan, 
Minnesota,  North  Carolina,  Pennsylvania  and  Texas.  Statutes  in 
accordance  with  the  latter  recom^mendations  were  passed  by  Alabama, 
Arkansas,  Illinois,  Indiana,  Iowa,  Kansas,  Minnesota,  Missouri, 
Nebraska,  North  Carolina,  North  Dakota,  Pennsylvania,  South 
Dakota,  West  Virginia  and  Wisconsin.  Maximum  rates  for  particular 
articles  of  freight  were  enacted  in  Alabama,  Kansas,  Minnesota, 
Missouri,  Nebraska,  North  Carolina  and  North  Dakota.  Alabama 
took  a  leaf  from  the  experience  of  North  Carolina,  Florida,  Arkansas 
and  Georgia  and  passed  statutes  similar  to  those  of  the  latter  States 
requiring  substantially  immediate  payment  by  the  railroads  for  all 
claims  for  damages  under  very  heavy  penalties. 

This  hostility  toward  large  corporations  was  cleverly  invoked 
by  the  Federal  administration  in  support  of  measures  conferring  in- 
creased supervisory  powers  upon  the  Federal  branch  of  the  Govern- 
ment. In  May,  1906,  while  the  Hepburn  Railroad  Rate  Bill  was  being 
debated  in  the  Senate,  the  President  sent  a  special  message  to  Congress 
denouncing  the  "vmfair  advantage  over  its  competitors"  enjoyed  by 
the  Standard  Oil  Company,  and  declaring  that  the  enactment  of  a 
law,  giving  the  Interstate  Commerce  Commission  the  right  to  fix 
railroad  rates,  was  necessary  in  order  to  prevent  such  abuses.  In  the 
storm  of  popular  feeling  aroused  by  this  message,  the  bill  was  passed. 
While  the  Pure  Food  Bill  and  Meat  Inspection  Bill  were  meeting  op- 
position in  Congress,  the  President  made  public  the  report  of  the  in- 
vestigation of  the  Chicago  packing  establishments.  In  the  national 
revulsion  aroused  by  this  disclosure,  these  bills  were  passed.  While 
the  passion  for  Federal  control  was  highest,  an  Employers'  Liability 
Law  ^  (since  declared  to  be  an  unconstitutional  exercise  of  Federal 
power)  was  enacted,  a  National  Child's  Labor  Bill  was  agitated,  and 
the  Federal  regulation  of  large  businesses  generally  was  vigorously 

*  An  amended  employers'  liability  law  has  since  been  upheld.  —  Editor's  Note, 


AND  THE  FUNCTIONS  OF  GOVERNMENT     43 

urged  in  Presidential  messages  and  in  the  various  reports  of  the 
Commissioner  of  Corporations. 

The  extreme  to  which  this  spirit  of  governmental  interference  was 
pushed  would  have  been  inconceivable  a  generation  ago.  In  1907, 
the  Commissioner  of  Corporations  in  a  report  upon  a  private  industrial 
enterprise,  repeatedly  spoke  of  "reasonable  commercial  return," 
"average  competitive  profit,"  "average  business  return,"  and  "normal 
rate  of  profit,"  meaning  to  describe  his  personal  standard  for  deter- 
mining the  degree  in  which  the  prices  and  profits  of  a  private  enterprise 
were  "reasonable"  or  "unreasonable."  Inferentially,  the  Commis- 
sioner indicated  that  this  standard  of  "reasonable  commercial  return" 
was  about  ten  per  cent,  that  any  profit  upon  business  investment  in 
excess  of  this  return  proved  that  prices  were  unreasonable,  and  that 
the  concern  obtaining  such  profits  was  oppressive  and  illegal. 

In  the  same  spirit.  Representative  Hepburn,  at  the  suggestion  of 
President  Roosevelt,  in  1908  prepared  a  bill  to  amend  the  Sherman 
Anti-Trust  Act,  and  introduced  it  into  Congress.  This  bill  proposed 
to  leave  it  to  the  Bureau  of  Corporations  to  define  what  combina- 
tions were  guilty  of  crime.  The  original  mischief  of  the  Sherman  Anti- 
Trust  Act,  in  outlawing  organized  capital  and  organized  labor,  was 
sought  to  be  tempered  by  a  system  of  special  immunity.  The  dis- 
pensation of  this  immunity  was  not  intrusted  to  the  courts,  but  to  a 
bureau  in  the  Department  of  Commerce  and  Labor.  Under  such  a 
statute,  every  business  man  making  contracts  relating  to  interstate 
commerce,  and  desiring  to  escape  the  penalties  of  the  law,  was  required 
to  file  his  contract  with  a  Government  bureau  and  then  wait  for  sixty 
days  before  completing  or  executing  the  contract !  But  the  bill  died 
in  the  committees  of  the  House  and  the  Senate. 

These  proposals  of  strict  governmental  control  have  not  always 
originated  among  legislators  and  Government  ofiicials.  The  Hepburn 
Bill  of  1908  was  drafted  with  the  assistance  of  Mr.  Francis  Lynde 
Stetson,  chief  counsel  of  the  United  States  Steel  Corporation,  and 
Mr.  Victor  Morawetz,  chairman  of  the  board  of  directors  of  the  Atchi- 
son, Topeka  &  Santa  Fe  Railway.  Such  a  plan  had  frecjuently  been 
urged  before  popular  audiences  by  Judge  Elbert  H.  Gary  and  Mr. 
George  W.  Perkins,  of  the  United  States  Steel  Corporation,  and  was 
informally  put  in  practice  for  their  benefit  during  the  panic  of  1907, 
when  the  administration,  acting  under  the  belief  that  it  was  saving  a 
great  financial  institution,  virtually  granted  a  special  amnesty  and 
dispensation  of  the  Sherman  Anti-Trust  Act  to  the  United  States 
Steel  Corporation  by  permitting  the  acquisition  by  that  company  of 
the  Tennessee  Coal  &  Iron  Company.  Through  a  similar  dispensa- 
tion, no  less  substantial  because  it  was  tacit,  the  United  States  Steel 
Corporation  and  the  larger  independent  steel  comi)anics,  without 
effort  at  concealment  and  without  fear  of  prosecution,  united  during 


44    THE   CHANGING   CONCEPTIONS  OF   PROPERTY 

the  year  that  followed  to  "maintain  the  stability  of  their  market, 
working  together  for  one  another"  —  to  use  Judge  Gary's  phrase 
—  "as  opposed  to  the  unreasonable  and  destructive  competition  of 
the  past."  Only  a  year  ago  the  Standard  Oil  Company  proposed  to 
the  State  of  Missouri,  as  a  desperate  alternative  to  exclusion  from  the 
State,  that  a  new  Missouri  corporation  be  formed  to  take  over  all  the 
property  and  business  of  the  Standard  Oil  Company,  in  the  State 
and  that  the  new  corporation  should  be  controlled  by  two  trustees, 
one  selected  by  the  State  and  one  by  the  Company,  in  such  manner 
that  "a  fair,  just,  lawful  and  proper  treatment"  should  be  secured 
to  the  public  as  well  as  to  the  owners.  A  similar  suggestion  was  made 
to  the  State  of  Kansas  by  the  International  Harvester  Company, 
which  had  been  convicted  in  that  State  of  a  violation  of  its  anti-trust 
law.  Such  a  regime  of  governmental  benevolence  and  paternalism 
is  only  a  step  removed  from  the  fulfillment  of  Mr.  Andrew  Carnegie's 
prophecy  that  a  "supreme  industrial  court  will  have  to  be  created 
and  eventually  will  have  to  pass  upon  prices." 

The  reasons  underlying  these  radical  proposals  seem  to  be  these : 
Upon  their  face  the  anti-trust  statutes  of  the  United  States  and  of  the 
several  States  are  so  indefinite  as  to  be  open  to  the  most  arbitrary  and 
capricious  interpretation.  So  long  as  these  statutes  continue  in  force, 
these  corporations  do  business  only  upon  the  sufferance  and  personal 
whim  of  the  prosecuting  authorities  and  the  judges  and  juries  charged 
with  enforcing  the  law.  To  avoid  this  peril  —  the  corporation 
managers  reason  —  these  laws  should  be  enforced,  not  by  judges  and 
juries,  but  by  experts. 

In  the  main,  all  statutes  in  the  direction  of  these  radical  proposals 
have  been  disappointing.  As  regards  the  railroads,  drastic  legislation 
has  practically  abolished  discriminatory  practices,  and  has  thus  kept 
the  word  of  promise  to  the  ear.  But  so  far  as  decreasing  or  readjusting 
freight  rates  is  concerned,  it  has  broken  the  promise  of  hope  to  the 
heart.  In  this  respect  the  Interstate  Commerce  Commission  and  the 
various  State  railroad  commissions  have  done  little  more  than  demon- 
strate the  reasonableness  of  the  rates  which  the  railroads  themselves  had 
previously  established.  The  State  of  Virginia  invoked  the  aid  of  the 
Federal  courts  to  restrain  its  own  Railroad  Commission  from  enforcing 
rulings  which  permitted  an  increase  of  rates  for  the  improvement  of 
transportation  conditions  in  Virginia,  until  in  1908  the  Supreme  Court 
of  the  United  States  refused  to  permit  such  interference.  Meanwhile, 
legislation  arbitrarily  fixing  railroad  rates  and  service  has  been  a  failure. 
In  igo6,  the  United  States  Supreme  Court  declared  unconstitutional 
the  Texas  statutes  compelling  railroads  to  furnish  a  certain  number  of 
cars  on  any  specified  date.  In  1908,  the  Supreme  Court  of  Pennsyl- 
vania declared  unconstitutional  the  two-cent-rate-fare  law  of  that 


AND  THE  FUNCTIONS  OF  GOVERNMENT    45 

State.  In  the  same  year  the  United  States  Supreme  Court  declared 
unconstitutional  the  rate  acts  adopted  by  Minnesota  and  North 
Carolina,  on  the  ground  that  they  were  confiscatory,  and  that  the 
enormous  penalties  which  they  imposed  were  unjust.  Litigation 
regarding  the  constitutionality  of  the  two-cent-rate-fare  legislation 
is  pending  in  half  a  dozen  other  States,  and  several  decisions  of  the 
lower  courts  —  notably  in  Missouri  —  have  held  such  rates  to  be  con- 
fiscatory. In  States  where  the  severest  laws  have  been  enacted, 
railroad  extension  and  improvement  have  practically  ceased.  The 
Attorney-General  of  Missouri  recently  declared  that  the  enforcement 
of  the  anti-trust  laws  of  that  State  would  paralyze  one- third  of  the 
entire  business  of  the  State.  Missouri,  Kansas  and  several  of  the 
Southern  and  Southwestern  States  are  now  experiencing  a  reaction 
from  radical  legislation.  During  the  past  six  years  anti-trust  laws 
in  five  States  have  been  declared  by  the  highest  courts  to  be  uncon- 
stitutional because  they  unfairly  discriminated  against  corporations 
in  favor  of  certain  privileged  classes  in  the  community. 

Still  more  disappointing  has  been  the  operation  of  the  Sherman 
Anti-Trust  Act.  Judge  Lacombe,  in  his  opinion  in  the  "Tobacco 
Trust"  case,  stated  the  consequences  of  the  Act  in  vivid  lan- 
guage : 

The  act  may  be  termed  revolutionary  because  before  its  passage  the 
courts  had  recognized  a  "restraint  of  trade"  which  was  held  not  to  be  un- 
fair, but  permissible,  although  it  operated  in  some  measure  to  restrict  com- 
petition. By  insensible  degrees,  under  the  operation  of  many  causes, 
business,  manufacturing,  and  trading  alike  has  more  and  more  developed  a 
tendency  toward  larger  and  larger  aggregations  of  capital  and  more  exten- 
sive combination  of  conditions.  In  that  way  only  can  production  be  in- 
creased and  cheapened,  new  markets  opened  and  developed,  stability  in 
reasonable  prices  secured,  and  industrial  progress  assured.  But  every  aggre- 
gation of  individuals  or  corporations  formerly  independent,  immediately 
upon  its  formation  terminates  an  existing  competition  ;  whether  or  not  some 
other  competition  may  subsequently  arise,  the  act,  as  above  construed,  pro- 
hibits every  contract  or  combination  in  restraint  of  co  npelition.  Size  is 
not  made  the  test.  Two  individuals,  who  have  been  driving  rival  express- 
wagons  between  villages  in  contiguous  States,  who  enter  into  a  combination 
to  join  forces  and  operate  a  single  hne,  restrain  an  existing  competition,  and 
it  would  seem  to  make  little  difference  whether  they  make  such  a  combina- 
tion more  effective  by  partnership  or  not. 

The  same  logic  determined  the  recent  decision  of  the  United  States 
Circuit  Court  in  the  Standard  Oil  case.  By  the  same  logic,  as  Judge 
Lacombe  points  out,  the  smallest  combination  affecting  trade  between 
two  States  is  subject  to  the  same  penalty  that  is  prescribed  for  the 
most  oppressive  monopoly.  In  his  annual  message  in  1906  President 
Roosevelt  said : 


46     THE   CHANGING  CONCEPTIONS  OF   PROPERTY 

The  actual  working  of  our  laws  has  shown  Ihal  the  effort  to  prohibit  all 
combination,  good  or  bad,  is  noxious  where  it  is  not  ineffective.  .  .  .  No 
more  scathing  condemnation  could  be  visited  upon  a  law  than  is  contained 
in  the  words  of  the  Interstate  Commerce  Commission  when,  in  comment- 
ing upon  the  fact  that  the  numerous  joint  traflic  associations  do  technically 
violate  the  law,  they  say:  "The  decision  of  the  United  States  Supreme 
Court  in  the  Trans-Missouri  case  and  the  Joint  Traffic  Association  case  has 
produced  no  practical  effect  upon  the  railway  operations  of  the  country. 
Such  operations,  in  fact,  exist  now  as  they  did  before  these  decisions  and 
with  the  same  general  effect.  In  justice  to  all  parties  we  ought  probably 
to  add  that  it  is  difficult  to  see  how  our  interstate  railways  could  be  operated 
with  due  regard  to  the  interest  of  the  shipper  and  the  railway  without 
concerted  action  of  the  kind  afforded  through  these  associations."  This 
means  that  the  law  as  construed  by  the  Supreme  Court  is  such  that  the 
business  of  the  country  cannot  be  conducted  without  breaking  it. 

In  his  annual  message  in  1907  and  in  his  special  messages  of  January 
31,  1908,  and  March  25,  1908,  President  Roosevelt  repeated  the  same 
criticism.  Similar  strictures  have  repeatedly  been  uttered  by  Presi- 
dent Taft  and  by  Attorney-General  Wickersham. 

At  the  present  time,  the  normal  transactions  of  business  are  for- 
bidden by  highly  penal  statutes.  Business  men  now  enjoy  liberty 
only  according  as  the  prosecuting  authorities  indulge  them  in  the 
open  breach  of  the  law.  Plainly,  our  legislation  respecting  large 
business  must  be  confessed  to  be  a  failure. 

The  causes  of  this  failure  are  simple.  The  legislation  upon  which 
we  heretofore  have  relied  has  been  directed  toward  two  absolutely 
inconsistent  purposes :  the  furtherance  of  free  competition,  and  at 
the  same  time  the  prohibition  of  the  very  agencies  and  organizations 
in  which  free  competition  most  normally  expresses  itself.  The 
Sherman  Anti-Trust  Act  and  the  anti-trust  laws  of  most  of  the  States 
are  striking  illustrations  of  this  hopeless  contradiction  of  purpose. 

Every  one  agreed  that  these  laws  were  enacted  to  further  free 
competition.  Every  one  knows  that  no  business  man  would  under- 
take the  strife  of  competition  without  the  assurance  that  he  may  enjoy 
the  price  if  he  wins  it.  In  order  to  preserve  healthy  competition,  the 
legitimate  growth  and  lawful  extension  of  the  business  of  the  successful 
trader  must  be  protected. 

Now,  the  large  business  of  the  successful  competitor,  which  the 
law  logically  must  protect,  presumes  the  disappointment  of  unsuccess- 
ful competitors.  As  Mr.  Justice  Holmes  said  in  the  Northern  Securi- 
ties case,  "every  concern  monopolizes  whatever  business  it  does." 
Large  business,  for  the  time  being  at  least,  is  the  subjugation  of  com- 
petition, the  victorious  appropriation  of  the  prize,  and  the  exclusive 
enjoyment  of  it,  subject  only  to  the  chance  of  losing  it  through  the 
same  rigor  of  competition  by  which  it  was  won. 

Just  here  is  where  the  mistake  of  so  much  futile  legislation  has 


AND  THE  FUNCTIONS  OF  GOVERNMENT    47 

arisen.  Because  a  business  becomes  large  —  and  every  successful 
business  grows  large  —  and  because  the  large  business  temporarily 
displays  the  characteristics  of  a  kind  of  monopoly,  we  have  hastily 
concluded  that  every  business,  as  soon  as  it  becomes  large,  is  a  monop- 
oly, actual  or  incipient,  and  must  be  cudgelled  and  cuffed,  and  either 
repressed  or  regulated,  in  the  same  manner  and  with  the  same  rigor 
as  monopolies  which  have  arisen  unnaturally  through  unlawful 
methods  of  competition,  or  which  have  arisen  inevitably  because  the 
nature  of  their  particular  business  made  competition  impossible. 

Repressive  and  prohibitory  legislation  has  its  place  in  the  field 
of  business  competition.  It  should  be  directed,  however,  not  against 
the  form  of  a  business  organization,  nor  yet  against  the  power  which 
its  efificiency  may  develop  ;  but  only  against  the  use  of  unlawful  means 
of  competition.  "Destroying  or  restricting  free  competition," 
"smothering  competition,"  "extinguishing  competition,"  "stilling 
competition,"  "eliminating  competition,"  "preventing  competition," 
"annihilating  competition"  and  "suppression  of  competition"  are 
practices  subversive  of  healthy  business  rivalry.  They  are  sometimes 
resorted  to  by  the  obscure  and  unsuccessful  competitor,  as  well  as 
by  his  conspicuous  and  successful  rival.  These  practices  should  be 
specifically  forbidden  to  large  and  small  competitors  alike.  Whether 
the  concern  which  resorts  to  these  practices  exerts  great  or  little  re- 
straint upon  commerce  should  be  immaterial. 

Regulation  by  governmental  commission  has  its  place  in  the  in- 
dustrial world.  As  a  remedy  for  the  abuses  of  business  competition 
and  of  industrial  trusts,  however,  it  is  destined  to  more  disastrous 
failure  than  has  overcome  the  prohibitory  anti-trust  laws. 

In  the  control  of  public-service  companies  —  such  as  railroads, 
street  railways,  water,  gas,  electric-light  and  water  companies,  public 
warehouses,  stock-yards,  and  the  like  —  which  enjoy  exclusive  fran- 
chises granted  by  law  or  extraordinary  powers  conferred  by  the  State, 
such  as  eminent  domain,  or  which,  by  the  very  nature  of  their  being, 
constitute  a  natural  monopoly  permitting  of  no  competition,  regulation 
by  governmental  commission  has  amply  justified  itself.  In  these 
anomalous  businesses,  which  really  are  governmental  functions  en- 
trusted to  private  capitalists  to  insure  the  most  enterprising  develop- 
ment, the  Government  very  properly  enforces  the  same  principles  that 
control  the  police  and  fire  service.  The  duty  to  serve  all,  with  ade- 
quate facilities,  without  discrimination,  and  at  a  reasonable  price, 
is  enjoined  upon  such  businesses.  Just  as  the  administration  of  the 
police  force  and  the  fire  department  is  naturally  deputed  to  individual 
officials  or  commissioners  responsible  to  the  community,  so  the  en- 
forcement of  the  duty  of  public-service  companies  is  properly  vested 
in  governmental  commissions.  Very  naturally,  the  powers  of  both 
classes  of  commissions  include  the  right  absolutely  to  prescribe  the 


48     THE   CHANGING   CONCEPTIONS   OF   PROPERTY 

character  of  the  facilities  and  the  price  of  the  service,  subject  only  to 
the  limitation  that,  in  so  doing,  the  legal  rights  of  the  persons  affected 
by  their  orders  shall  not  be  molested.  Regulation  by  commission, 
however,  is  only  necessary  where  the  law  or  the  nature  of  the  business 
virtually  prohibits  competition.  In  fixing  the  price  and  conditions 
of  service  in  these  businesses,  the  law  seeks  merely  to  le\'y  an  equitable 
tax  to  defray  a  public  expense.  It  presumes  that  competition  — 
which  in  ordinary  businesses  adjusts  the  character  of  the  facilities  and 
the  price  of  the  service  —  is  extinct,  and,  in  fact,  would  be  harmful, 
if  revived.  The  effect,  therefore,  is  to  render  real  competition  im- 
possible in  business  which  it  regulates. 

To  extend  regulation  by  governmental  commission  to  businesses 
which  do  not  enjoy  exclusive  franchises  granted  by  law,  or  extraor- 
dinary powers  granted  by  the  State,  or  a  monopoly  arising  from  the 
nature  of  the  business,  and  to  apply  regulation  by  commission  wher- 
ever a  business  has  developed  large  size,  is  to  deny  the  efficacy  of  com- 
petition in  its  most  normal  working,  and  to  hamper  competition  in 
every  branch  of  industry.  In  such  businesses,  competition  naturally 
exists,  and,  in  order  to  maintain  a  healthy  condition,  should  be  en- 
couraged. Interference  with  prices  and  with  the  form  of  organiza- 
tion of  such  businesses  only  creates  artificial  barriers,  behind  which 
lurk  forms  of  privilege  quite  as  dangerous  as  monopoly.  Such  inter- 
ference stultifies  the  avowed  purpose  of  all  anti-trust  legislation,  and 
violates  the  first  principle  of  economic  progress,  and  subverts  the 
fundamental  proposition  of  individual  liberty  upon  which  this  Govern- 
ment was  founded. 

The  abuses  of  business  competition  are  real  and  serious,  and  must 
be  cured  by  legislation.  The  remedy,  however,  lies  in  the  direction 
of  free  competition,  rather  than  paternal  control.  Every  statute  which 
furthers  free  competition,  and  strikes  specifically  at  the  various  forms 
of  unlawful  competition  and  fraud  which  impede  it,  will  hasten  the 
cure.  Any  statute  which  imposes  governmental  interference  upon  a 
business  merely  because  it  is  large  —  whether  that  interference  be 
indiscriminate  prohibition,  or  the  more  insidious  form  of  regulation 
by  governmental  commission  —  will  delay  the  cure,  and  prolong  the 
uncomfortable  situation  in  which  business  has  stood  before  the  law 
for  the  past  twenty  years.  The  principle  which  should  guide  all  legis- 
lation upon  this  intricate  subject  was  tersely  expressed  by  the  com- 
mittee which  drafted  the  Corporation  Law  of  Massachusetts  in  1903  : 
"So  far  as  purely  business  corporations  are  concerned,  and  excluding 
insurance,  financial  and  public  service  corporations,  the  State  cannot 
assume  to  act  directly  or  indirectly  as  guarantor  or  sponsor  for  any 
organization  under  corporate  form.  .  .  .  The  State  should  permit 
the  utmost  freedom  of  self-regulation,  if.it  provides  quick  and  effective 
machinery  for  the  punishment  of  fraud.  .  .  ." 


II 

THE   RESPONSE   OF   LEGISLATURES    AND 
COURTS    TO   THE    NEWER   DEMANDS 

AMERICAN  LEGISLATION  ON   PROPERTY  RIGHTS  ^ 

By  Frederic  Jesup  Stimson,  of  the  Harvard  Law  School 

(Chap.  VII  of  "  Popular  Law  Making,"  published  by  Charles  Scribner's 
Sons,  Copyright  1910}  ^ 

There  are  two  processes  by  which  the  changing  public  opinion  on  property 
relations  become  fixed :  legislation  and  adjudication.  Under  a  written 
constitution  the  latter  is  scarcely  a  flexible,  while  under  a  democracy  the 
former  is  a  constantly  and  easily  changing,  process.  The  following  articles 
indicate  the  extent  to  which  recent  legislation  has  responded  to  popular 
demand  and  the  attitude  of  the  courts  toward  changing  conditions.  — 
Editor's  Note. 

When  we  come  to  the  vast  field  of  legislation  in  the  United  States, 
comprising  the  law-making  of  forty-six  States,  two  Territories,  the 
National  Congress,  and  the  Federal  District,  it  is  difficult  to  decide 
how  to  divide  the  subject  so  as  to  make  it  manageable.  The  division 
made  by  State  codes  and  revisions,  and  the  United  States  Revised 
Statutes,  hardly  suits  our  purpose,  for  it  is  made  rather  for  lawyers 
than  sociologists  or  students  in  comparative  legislation.  The  divi- 
sion made  by  the  valuable  "Year  Book  of  Legislation,"  published  by 
the  New  York  State  Library,  comprises  some  twenty  subjects :  Con- 
stitutional Law  ;  Organic  Law  ;  Citizenship  and  Civil  Rights  ;  Elec- 
tions ;  Criminal  Law  ;  Civil  Law  ;  Property  and  Contracts  ;  Torts  ; 
Family;  Corporations;  Combinations  and  Monopolies;  Procedure; 
Finance;  Public  Order;  Health  and  Safety;  Land  and  Waters; 
Transportation  ;  Commerce  and  Industry ;  Banking  ;  Insurance ; 
Navigation  and  Waterways ;  Agriculture ;  Game  and  Fish ;  Mines 
and  Mining  ;  Labor  ;  Charities  ;  Education  ;  Military  Matters  ;  and 
Local  Government.  This  division,  however  convenient  in  practice, 
crosscuts  the  various  fields  of  legislation  as  divided  in  any  logical 
manner.     The  same  criticism  may  be  applied  to  a  somewhat  simpler 

'  Copyright  reserved. 
49 


so    THE   RESPONSE   OF  LEGISLATURES   AND   COURTS 

division  I  have  used  in  tabulating  State  legislation  for  the  last  twenty 
years  into  thirteen  columns,  the  titles  of  these  being,  roughly  speaking. 
Property  and  Taxation  ;  Regulation  of  Trades  and  Commercial  Law  ; 
Personal  Liberty  and  Civil  Rights ;  Labor ;  Criminal  Law,  Health 
and  Morality ;  Government ;  Elections  and  Voting ;  Courts  and 
Procedure ;  Militia  and  Military  Law ;  Women,  Children,  Marriage 
and  Divorce  ;  Charities,  Education,  Religion  and  Jails  ;  Agriculture, 
Mining  and  Forestry ;  Corporations,  Trusts  and  Interstate  Com- 
merce. Is  it  not  possible  to  begin  with  a  broader  and  more  simple 
division  ? 

Now  all  statutes  are  limitations  on  a  state  of  pure  individualism, 
defining  this  latter  word  to  mean  a  state  of  society  recognizing  per- 
sonal liberty  and  private  property,  and  allowing  all  possible  freedom 
of  action  and  contract  relating  thereto ;  with  a  court  administration 
for  the  purpose  of  protecting  such  liberty  and  enforcing  such  contracts 
in  the  courts.  The  usual  rough  division  of  our  constitutional  rights, 
following  the  phraseology  of  the  Fourteenth  Amendment,  is  that  of 
life,  liberty,  and  property ;  but  the  rights  to  life  and  liberty  obviously 
belong  to  the  same  broad  field.  Our  first  division,  therefore,  may 
well  be  that  which  divides  life  and  liberty  rights  from  property  rights ; 
although  in  some  cases,  notably  in  the  earnings  of  labor,  they  would 
be  found  to  run  together.  Liberty  rights  are  multifarious  and  in- 
definite; we  may,  therefore,  first  take  the  field  of  property  as  pre- 
senting, after  all,  a  more  simple  subject.  Considering  all  possible 
organizations  of  human  society  from  this  point  of  view,  we  shall  find 
that  all  may  be  expressed,  all  at  least  that  have  hitherto  been  con- 
ceived, under  the  systems  of  anarchism,  individualism,  and  socialism, 
these  words  expressing  all  possible  states  of  human  society  when  ex- 
pressed in  terms  of  individual  liberty,  that  is  to  say,  the  free  exercise 
of  the  individual  will.  Either  one  of  these  may  exist  either  with  or 
without  the  notion  of  private  property;  though,  of  course,  one's 
action  as  to  property  would  be  controlled  under  a  system  of  socialism, 
and  property  itself  would  have  no  legal  protection  under  a  system  of 
anarchism.  Nevertheless,  the  notion  of  property  might  still  exist 
and  be  recognized  by  the  custom  of  mankind  without  any  sanction 
or  enforcement  from  the  entire  community,  i.e.,  what  people  call 
the  state.  When  we  are  speaking  in  terms  of  property,  we  use  the 
word  communism  —  meaning  that  state  of  society  where  the  concep- 
tion of  property  exists,  but  the  law  or  custom  vAW  not  recognize  in- 
dividualism. Communism,  therefore,  usually  implies  ownership  by 
the  entire  community,  while  in  anarchism  there  is  no  property  at  all. 
There  has  been  much  confusion  in  the  use  of  these  terms  in  the  popular 
mind,  and  even  in  ordinary  writing.  Many  people  have  confounded, 
for  instance,  socialism  with  anarchism  or  nihilism,  when  the  two 
things  are  whole  poles  apart.     In  the  same  manner,   communism 


TO  THE   NEWER   DEMANDS  51 

has  been  confounded  with  socialism,  although  the  term  should  be 
used  in  entirely  different  connections  —  communism  when  we  are 
speaking  in  terms  of  property,  socialism  when  we  are  speaking  in 
terms  of  individual  liberty.  The  word  individualism  was  used  by 
the  present  writer  in  a  series  of  articles  entitled  "The  Ethics  of  Democ- 
racy," beginning  in  1887,  as  the  most  convenient  term  for  describing 
that  state  of  society  where  the  greatest  possible  individual  liberty  is 
conjoined  with  a  strong  recognition  of  the  right  of  private  property, 
substantially  the  laissez  faire  school  as  it  existed  in  England  in  the 
first  half  of  the  last  century;  "the  distinction  between  communistic 
and  socialistic  laws  being,  that  the  former  are  concerned  solely  with 
the  taking  and  redistribution  of  money  or  property ;  the  latter  regulate 
or  prohibit  men's  mode  of  life,  acts,  or  contracts,  either  among  them- 
selves or  as  concerning  the  state."  * 

Now,  property  is  but  the  creature  of  law ;  and  that  is  to  say,  in 
those  of  our  States  which  have  no  common  law,  of  statute.  Jurists 
and  communists  are  alike  agreed  on  this.  "Property  is  robbery," 
said  Proudhon  ;  property  is  but  the  creature  of  law,  all  English  jurists 
admit.  It  is,  of  course,  possible  to  conceive  of  a  social  system  which 
recognizes  no  right  of  property,  or  one  which  makes  all  property 
belong  to  the  community,  or  a  middle  ground  which  admits  the  insti- 
tution, but  holds  that  every  indi\adual  holds  property  subject  to  the 
state's,  that  is,  the  organized  community's,  regulation  and  control. 
A  convenient  term  for  this  state  of  affairs  to  which,  perhaps,  in  our 
statutes,  we  are  approaching,  is  "allowable  socialism";  private 
property  is  recognized,  but  its  use  is  regulated.  In  England  they 
call  it  "gas-and-water  socialism"  ;  but  this  term,  though  picturesque, 
is  not  sufficiently  comprehensive,  relating,  as  it  does,  only  to  municipal 
activities.  There  is  a  third  variety,  the  latest  and  perhaps  the  most 
intelligent  of  all,  that  believed  in  by  leading  modern  German  and 
American  socialists,  which  we  will  call  nationalism  —  the  nationaliza- 
tion or  municipalization  of  productive  industry  —  the  science  of  this 
doctrine  being  that  private  property  may  exist  in  all  personal  belong- 
ings, articles  of  pleasure,  or  domestic  necessity,  but  not  in  lands, 
mines,  works,  or  other  instrumentalities  used  for  the  further  i)roduc- 
tion  of  wealth. 

Whatever  the  future  may  bring,  we  must  start  with  the  institution 
of  private  property  recognized  to  its  fullest  extent.  It  is  expressly 
guaranteed  in  our  Federal  Constitution,  as  for  the  matter  of  that  it 
was  also  in  Magna  Charta,  as  clearly  as  the  right  to  liberty,  and  usually 
in  the  very  same  clause.  Not  only  that,  but  when  we  adopted  our 
first  State  constitutions,  from  1776  to  1788,  and  the  Federal  Constitu- 
tion in  1789,  every  one  of  them  made  express  guarantee  of  this  right. 
One  or  two,  following  the  lead  of  Massachusetts  and  Virginia,  recog- 

^  Scribner's  Magazine,  Vol.  XV,  p.  653. 


52     THE  RESPONSE   OF  LEGISLATURES   AND   COURTS 

nized  equality  also,  or,  at  least,  equality  by  birth  and  before  the  law  ; 
but  without  exception  property  was  expressly  recognized  as  one  of  two 
leading  constitutional  rights,  and  even  in  some  States,  like  Virginia, 
it  was  termed  a  natural  right.  The  same  thing  is  true  of  the  Massa- 
chusetts Bill  of  Rights  and  in  the  Federal  Fifth  Amendment,  though 
it  is  significant  that  the  Declaration  of  Independence  omits  the  word 
property,  and  only  mentions  among  unalienable  rights,  life,  liberty, 
and  the  pursuit  of  happiness  —  which  some  courts  have  held  to  include 
private  property.^  Nevertheless,  under  our  constitutions  to-day, 
the  right  is  not  only  doubly,  but  even  triply  guaranteed  ;  that  is  to  say, 
by  all  State  constitutions  against  State  action ;  by  the  Federal 
Constitution  against  national  action ;  and  finally,  by  the  Federal 
government  in  the  Fourteenth  Amendment  as  against  State  ac- 
tion also.  This  is  the  reason  why,  in  any  case  affecting  a  cardi- 
nal liberty  or  property  right,  a  litigant  may  carry  his  case  not 
only  through  the  State  courts,  which  have  sole  jurisdiction  of  or- 
dinary business  and  domestic  matters,  but  to  the  courts  of  the 
United  States  as  well. 

When  we  come  to  legislation  on  the  subject,  or  to  modern  State 
constitutions,  there  is  hardly  a  change  in  this  particular.  Naturally, 
we  find  no  new  legislation  confirming  the  right  of  property  abstractly, 
or  restating  that  that  institution  is  part  of  our  civilization.  There  is 
but  one  significant  exception  to  this  statement.  While  most  of  the 
States  in  their  constitutions  declare  that  men  have  a  natural  right  to 
acquire,  possess,  and  protect  property,  and  Kentucky  and  Arkansas 
go  to  the  length  of  saying  that  the  right  of  property  is  "before  and 
higher  than  any  constitutional  sanction"  —  which  latter  statement 
is  a  legal  hyperbole  —  Oklahoma  in  its  recent  constitution.  North 
Carolina,  and  Missouri  state  only  that  men  have  a  natural  right  to 
the  enjoyment  of  the  fruits  of  their  own  labor ;  on  the  other  hand 
there  are  recent  intimations  coming  from  Federal  sources  that  individ- 
ualism or  private  property  rights,  at  least,  and  not  anarchism  or 
socialism,  are  part  of  our  constitutional  system.  Before  1907  a 
Texas  district  judge  refused  to  naturalize  an  immigrant  on  the  ground 
that  he  was  a  socialist  and  that  socialism  was  inconsistent  with  the 
Federal  Constitution ;  and  in  that  year  Congress  passed  an  act  to 
regulate  all  immigration  of  aliens,  which  excluded,  among  other 
classes,  persons  who  believe  in  or  advocate  the  overthrow  by  force  or 
violence  of  the  government  of  the  United  States  or  of  all  government, 

1  Justice  Brewer,  Yale  Law  Rei'inv,  June,  1891.  He  holds  that  under  "the  pursuit  of 
happiness"  comes  the  acquisition,  possession,  and  enjoyment  of  property,  and  that  they 
are  matters  which  even  government  cannot  forbid  nor  destroy.  That,  except  in  punishment 
for  crime,  no  man's  property  can  be  taken  without  just  compensation,  and  he  closes:  "In- 
stead of  saying  that  all  private  property  is  held  at  the  mercy  of  the  public,  it  is  a  higher 
truth  that  all  rights  of  the  state  in  the  property  of  the  individual  are  at  the  expense  of  the 
people." 


TO   THE   NEWER   DEMANDS  $$ 

or  of  all  forms  of  law  —  a  definition  which  would  exclude  anarchists, 
but  not  socialists  ;  and  in  the  case  of  South  Carolina  vs.  United  States 
(199  U.S.  437),  the  Supreme  Court  of  the  United  States  gave  serious 
consideration  to  the  question  whether  State  socialism  was  compatible 
with  a  republican  form  of  government.  This  is  all,  so  far  as  I  am 
aware,  that  a  century  and  a  half  of  legislation  has  given  us  affirming  the 
abstract  right  of  property,  though  there  are  several  constructive  stat- 
utes and  constitutional  provisions  applied  to  the  general  right  to 
trade  or  labor,  which  we  shall  consider  when  we  come  to  that  subject. 

When  a  right  is  expressly  guaranteed  by  the  Constitution  we  need 
ordinarily  have  no  affirmative  legislation  about  it.  Liberty  and 
property  being  always  guaranteed  by  the  State  constitutions,  it  has 
not  been  necessary  for  the  States  to  legislate  to  protect  them. 

Our  study  of  this  subject,  therefore,  will  be  confined  to  the  restric- 
tive or  limiting  legislation  affecting  private  property  or  property 
.rights,  and  of  this  we  shall  find  plenty.  Now  there  are  four,  and  only 
four,  methods  by  which  the  state,  that  is  to  say,  American  society 
as  organized  into  governments,  interferes  with  the  right  to  property 
or  the  enjoyment  and  use  thereof ;  that  is  to  say,  taxation,  which  is, 
of  course,  general ;  eminent  domain,  a  peculiarly  American  doctrine ; 
the  police  power ;  and  the  regulation  of  rates  and  charges.  Some 
authorities  place  the  last  under  the  police  power ;  but  it  does  not  seem 
to  me  that  it  historically,  if  logically,  belongs  there. 

Starting  with  the  simplest  first  —  eminent  domain,  an  American 
doctrine  which,  in  its  simplest  form,  subjects  the  land  of  any  one  to 
the  need  of  the  state,  or,  in  cases  authorized  by  the  Federal  Constitu- 
tion, of  the  nation.  It  is  questionable  whether  it  applies  to  personal 
property.  It  is  an  American  doctrine,  for  in  England  where  the 
king  remained  in  theory  the  feudal  over-lord,  it  was  not  necessary 
for  him  or  the  sovereign  Parliament,  wishing  to  take  or  control  land, 
and  having  no  constitution  protecting  property  rights  against  such 
action,  to  invent  any  new  doctrine ;  but  with  us  all  land  is  allodial. 
The  old  charters  of  the  original  States  creating  tenures  in  free  and 
common  socage  are,  of  course,  obsolete.  Everybody  is  a  freeholder, 
and  the  States  are  not,  still  less  the  Federal  government,  a  feudal 
over-lord.  Nevertheless,  the  property  of  every  one  must  be  subject 
to  the  supreme  common  necessity ;  and  the  right  is  absolute  in  the 
States,  although  lim-ited  in  the  national  government  by  the  Federal 
Constitution.  It  is  an  American  constitutional  principle ;  and  this 
principle  also  provides,  as  does  Magna  Charta  and  the  early  charters 
of  England  as  to  personal  property  seized  by  royal  purveyors,  that  full 
damages  must  be  paid ;  and  to  this  general  principle  our  constitutions 
have  added  that  the  damages  must  be  paid  at  the  time  of  the  taking 
and  the  amount  be  determined  by  due  process  of  law  ;  that  is  to  say,  in 
most  cases  by  a  jury.     Blackstone  says  :  "So  great  is  the  regard  of  the 


54    THE   RESPONSE  OF  LEGISLATURES   AND   COURTS 

law  for  private  property  that  it  will  not  authorize  the  least  violation 
of  it ;  not  even  for  the  general  good  of  the  whole  community" ;  ^  a 
new  road,  for  instance,  cannot  be  made  without  consent  of  the  owner 
of  the  land,  and  the  words  "eminent  domain"  do  not  appear  in  the 
text  of  his  book.  But  though  we  hold  the  contrary  doctrine,  the 
rights  of  the  property  owner  are  sufficiently  protected  when  the  taking 
is  directed  by  the  State,  or  even  by  a  city  or  town.  The  menace  to 
property  here,  with  the  increasing  bulk  of  legislation,  comes  in  the  num- 
ber of  new  uses,  not  only  directly  for  the  State  or  for  cities  and  towns, 
but  for  public-service  corporations,  or  often  other  private  corporations, 
and  associations  of  persons,  who  are  permitted  by  legislation  to  take 
land  under  eminent  domain,  or,  what  is  often  worse,  to  acquire  ease- 
ments over  it.  Most  of  the  States  give  damages  for  land  not  actually 
taken,  but  damaged,  though  our  Federal  courts  have  not  held  this  to  be 
necessary  under  the  Fourteenth  Amendment ;  but  although  land  can 
still,  in  theory,  only  be  taken  for  a  public  use,  the  number  of  uses, 
which  our  legislation  makes  public  is  being  enormously  increased. 
The  usual  national  purposes  are  forts,  magazines,  arsenals,  dockyards, 
and  other  needful  buildings.  Independent  of  some  express  permission 
in  the  Constitution,  the  Federal  government  has  no  power  to  take,  or 
even  to  own,  land  at  all  within  the  State  limits.  Therefore,  it  is  ques- 
tioned whether  land  may  be  taken  for  national  parks  or  forest  reserva- 
tions except  in  the  Territories,  where  title  still  remains  with  the  Federal 
government.  But  the  State's  power  of  eminent  domain  is  unlimited, 
although  it  began  only  with  the  towns  or  counties  taking  roads  for  high- 
ways, and  cities  and  towns  appropriating  lands  for  schools  and  other 
public  buildings.  Probably  the  only  serious  addition  of  a  wholly  public 
use  is  covered  by  the  general  expression,  parks  and  playgrounds ;  but  the 
analogy  of  the  highway  led  to  the  taking  of  land  under  eminent  domain 
for  railroads  when  they  were  first  invented,  then  for  street  railways, 
then  for  telegraph,  telephone,  and  electric-light  lines,  underground 
pipe-lines  or  conduits  of  all  sorts,  and  finally,  for  drains,  sewerage 
districts,  public,  and  often  private  irrigation  purposes.  Most  of  the 
more  complex  State  constitutions  define  at  great  length  to  the  extent 
of  some  twenty  or  thirty  paragraphs  just  what  purposes  shall  be  con- 
sidered a  public  use  under  eminent  domain.  In  the  absence  of  such 
definition,  or  without,  such  definition,  the  number  of  such  uses  is 
being  enormously  increased  by  statute.  Thus',  reservoirs,  storage 
basins,  irrigation  canals,  ditches,  flumes,  and  pipes  for  water  drainage, 
or  mining  purposes,  working  mines,  as  dumps,  hoists,  shafts,  tunnels, 
are  made  a  public  use  by  the  constitutions  of  the  arid  States,  Idaho 
and  Wyoming.  So  as  to  water  only  in  Montana,  but  in  Idaho  also  to 
any  other  use  "  necessary  for  the  complete  development  of  the  ma- 
terial resources  of  the  State  or  the  preservation  of  the  health  of  its 

'  Book  I,  p.  139. 


TO  THE   NEWER   DEMANDS  55 

inhabitants."  ^  And  even  by  private  parties,  land  may  be  taken 
for  ways  of  necessity  in  many  States,  and  for  drains,  flumes,  and 
aqueducts  by  the  constitutions  of  the  arid  States. 

At  common  law,  of  course,  a  man  or  a  set  of  men,  who  happen  to 
be  neighbors,  would  have  had  no  right  to  take  my  land  for  a  private 
way,  or  for  drainage  or  irrigation  purposes,  however  beneficial  to 
their  land;  still  less  to  take  water  from  my  stream  across  my  land 
to  their  fields.  But  this  precise  thing  can  be  done  in  an  increasing 
number  of  States,  although  it  has  been  held  unconstitutional  in  the 
courts  of  one  or  two  of  the  far  Western  States,  and  has  even  yet  not 
been  decided  by  the  Supreme  Court  of  the  United  States  as  to  the 
powers  of  the  Federal  government.  Under  the  broad  definition 
given  in  Idaho  and  Wyoming,  you  can  probably  take  land  to  establish 
a  municipal  coal-yard,  or  dispensary,  or  anything  else  that  the  legis- 
lature might  suppose  to  be  for  the  general  health  or  benefit  of  the 
people.  Yet  a  hotel  company  would  not  as  yet  be  considered  a 
public  use,  nor,  probably,  a  private  recreation  park.  And  land  taken 
for  one  use  may  be  subjected  to  other  and  totally  distinct  uses  without 
giving  any  new  right  of  damages,  as  was  decided  in  Massachusetts,  at 
least,  when  land  given  or  taken  for  an  ordinary  city  street  was  after- 
ward occupied  by  a  steam  railroad.  A  notable  limitation  on  the  use 
of  streets,  however,  w^e  find  imposed  by  the  statutes  of  New  York  and 
many  other  States,  which  provide  that  no  railway  shall  be  placed 
therein  without  the  consent  of  a  majority  of  the  property  owners  or 
abutters.  There  is  frequent  legislation  providing  that  the  better- 
ment taxes  collected  in  case  of  public  improvement  shall  not  exceed 
the  damages  given  for  the  property  actually  taken.  In  the  last  two 
or  three  years  there  has  been  an  extension  of  the  doctrine,  authorizing 
cities  and  towns  to  take  more  land  than  is  actually  needed,  for  the 
purpose  of  convenience,  or  in  order  to  get  a  better  bargain,  and  then 
sell  the  surplus  ;  but  such  laws  may  be  unconstitutional. 

Land  may,  of  course,  be  taken  for  all  municipal  puqDoses,  including 
public  squares  or  parks,  playgrounds,  reformatories  and  penal  institu- 
tions, levees,  ditches,  drains,  and  for  cemeteries ;  and  the  right  is  being 
granted  to  private  companies  other  than  those  above  mentioned,  in 
Colorado,  to  tunnel,  transportation,  electric  power,  and  aerial  tram- 
way companies ;  in  North  Carolina  to  flume  companies ;  in  many 
States  for  private  irrigation  districts  ;  in  the  West  generally  to  mining 
or  quarrying  companies  ;  in  West  Virginia  and  other  States  to  electric 
power,  light,  or  gas  companies ;  while  in  North  Carolina,  Washington, 
and  Wisconsin,  we  find  the  dangerous  grant  of  this  great  power 
to  electric-power  companies,  which  are,  in  Wisconsin  at  least,  ex- 
pressly permitted  to  flood  lands  by  right  of  eminent  domain  in  order 
to  form  ponds  for  power  purposes.  It  is  easy  to  see  that  under  such 
*  These  provisions  are  collated  in  Federal  and  State  Constitutions,  p.  159. 


S6     THE  RESPONSE   OF    LEGISLATURES   AND    COURTS 

legislation  everybody  holds  his  land  not  only  subject  to  public  need,  but 
to  the  greed  of  any  designing  neighbor.  Perhaps  the  most  important 
question  of  eminent  domain  is  or  was  whether  it  authorized  general 
schemes  of  internal  improvement  made  by  the  State  or  by  a  munici- 
pality, or,  worse  still,  by  a  private  corporation  chartered  for  the  pur- 
pose. The  Constitution  of  Michigan,  with  those  of  the  Dakotas  and 
Wyoming,  provides  that  the  State  cannot  be  interested  in  works  of 
internal  improvement,  nor,  in  North  Dakota  and  Wyoming,  engage 
in  them  except  on  two-thirds  vote  of  the  people;  nor,  in  Alabama, 
may  it  loan  its  credit  in  support  of  such  works ;  nor,  also,  in  Mary- 
land, Minnesota,  Ohio,  and  Wisconsin,  create  or  contract  debts  for 
them ;  nor,  in  Kansas  and  Michigan  again,  be  a  party  to  carrying  on 
such  works.  But  the  Tennessee  Constitution  declares  that  a  well- 
regulated  system  of  internal  improvement  should  be  encouraged  by 
the  legislature.  So,  in  Virginia,  no  town  or  county  may  become  a 
party  to  any  work  of  internal  improvement  except  roads,  and  they 
are  frequently  forbidden  from  borrowing  money  for  such  purposes. 
There  is,  therefore,  considerable  constitutional  check  to  legislation 
in  this  direction.^ 

Taxation,  of  course,  has  from  all  time  been  the  universal  limitation 
upon  property  rights,  though  it  is  important  to  remember  that  until 
the  present  budget  there  has  not  in  modern  times  been  an  attempt  at 
direct  taxation  of  the  capital  value  of  land  in  England ;  Cobbett  re- 
cords many  "aids"  of  a  few  shillings  per  hide  of  land  in  Anglo-Norman 
times.  The  earliest  taxation  was  the  feudal  aids  imposed  purely  for 
defensive  purposes,  for  building  forts  and  bridges ;  later  for  foreign 
wars  or  crusades.  We  have  traced  the  origin  of  the  scutage  tax  as 
a  substitute  for  military  service  and  the  two  great  constitutional 
principles  that  all  taxation  must  be  with  the  common  consent  of  the 
realm  ;  that  is  to  say,  of  Parliament,  later  of  the  House  of  Commons  ; 
and  must  also  and  equally  be  for  the  common  benefit.  Theorists  have 
argued,  particularly  with  us,  that  under  the  latter  principle  protective 
tariffs  are  unconstitutional ;  but  even  if  it  be  admitted  that  they  are 
not  for  the  benefit  of  the  whole  people,  the  exception  is  as  old  as  the 
rule ;  protective  tariff  laws,  and,  earlier  still,  laws  absolutely  prohibi- 
tive of  importation,  being  plentiful  on  the  English  statute-books  before 
and  at  the  time  this  earliest  of  constitutional  principles  appeared. 
There  is  a  step  beyond  the  protective  tariffs,  however,  which  is  natu- 
rally mentioned  in  this  connection,  and  that  is  the  bounty  —  sums  of 
money  paid  to  certain  interests  and  derived  from  the  general  taxes 
fund.  Under  the  Acts  of  Congress  there  has  been,  I  think,  only  one 
instance  of  a  bounty ;  that  is  in  the  case  of  the  Louisiana  sugar- 
growers.  In  State  legislation  it  has  been  a  little  more  usual.  Foreign 
countries,  notably  Germany  and  France,  as  to  beet  sugar,  etc.,  have 

^  See  Federal  and  State  Constitutions,  Book  III,  sects.  92,  324,  345,  370,  391,  395. 


TO  THE  NEWER   DEMANDS  57 

been  in  the  habit  of  giving  bounties.  This  precedent  undoubtedly 
suggested  it ;  but  these  countries  do  not  enjoy  our  constitutional  prin- 
ciples. There  has  hardly  been  a  direct  decision  on  the  constitutionality 
of  the  Federal  bounty,  but  as  to  State  bounties  we  find  several,  with 
an  increasing  tendency  to  hold  void  such  laws.  There  can  be  no 
question  that  they  are  utterly  against  our  whole  constitutional 
system.  The  Supreme  Court,  when  considering  sugar-bounty  laws, 
seems  to  have  thought  that  it  might  be  sustained  as  a  compensation 
made  for  a  moral  obligation,  the  Louisiana  planters  having  been  led 
into  industries  from  which  the  protection  was  suddenly  removed; 
of  such  nature  must  be  the  justification,  if  any,  for  bounties  given  in 
times  of  flood,  fire,  or  public  disaster,  which,  however,  are  really  sus- 
tained only  in  the  absence  of  objection  and  on  the  principle  lex  non 
curat  de  minimis.  The  most  insidious  form  of  the  bounty,  however, 
is  that  of  exemption  from  taxation,  or,  still  worse,  granting  subsidies 
or  subscribing  to  the  stock  and  bonds  of  public-service,  or  even  ordi- 
nary private,  corporations.  Undoubtedly  the  exception  has  been  es- 
tablished in  the  case  of  railroads.  The  granting  of  State,  city,  or 
county  aid  to  railroads  has  existed  almost  from  their  in\-ention,  prob- 
ably on  the  analogy  of  highways ;  at  all  events,  it  is  too  late  to  be  con- 
stitutionally questioned  now.  The  exemption  from  taxation  of  private 
profitable  enterprises,  such  as  mills  or  factories,  is  less  defensible. 
Frequently,  however,  they  go  without  question,  it  being  to  no  one's 
particular  interest  to  do  so.  The  usual  subjects  of  State  bounties 
were,  in  1890,  beet-root  sugar,  binding  twine,  iron  and  iron-pipe, 
potato  starch,  and  rope,  with  tax  exemptions  to  portland-cement 
works.  Ramie  fiber  continued  a  favorite  subject  of  bounty  for  some 
years,  with  seed  distributions  to  farmers,  which  were  in  some  States 
held  unconstitutional.  In  1896  Utah  gave  a  bounty  on  canaigre 
leather  and  silk  culture.  There  was  an  exemption  on  salt  plants  in 
Michigan,  but  beet  sugar  continued  the  favorite  beneficiary.  There 
has  been  a  reaction  against  bounty  legislation  of  recent  years.  In 
1908,  for  instance,  New  York  repealed  its  bounty  on  beet  sugar,  and 
it  may  be  hoped,  with  greater  intelligence  of  constitutional  principles, 
that  all  such  legislation  will  be  abandoned. 

Coniing  to  matters  of  ordinary  taxation,  of  course  the  first  thing 
to  note  is  its  extraordinary^  extent.  In  direct  taxation  it  is  not  an 
unfair  estimate  to  say  that  the  States  and  their  municipal  organiza- 
tions undertake  to  impose  an  annual  assessment  on  real  and  personal 
property  which  would  average  at  least  two  per  cent  throughout  the 
country ;  amounting  to  from  one  third  to  one  half  of  the  income  de- 
rived therefrom.  In  indirect  taxation,  duties,  and  revenue  taxes, 
a  sum  far  greater  is  taken  from  the  average  household.  One  might 
very  much  wish  that  the  indi\-idual  householder  might  at  least  know 
how  large  a  sum  is  thus  taken  from  his  earnings  annually,  for  it  is  safe 


58    THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

to  say  that  in  no  civilized  countr}-,  not  even  in  the  France  before  the 
Revolution,  was  indi\-iclual  taxation  any  thing  like  so  heavy.  There- 
fore, we  are  beginning  to  find  legislation,  even  constitutional  provisions, 
carefully  limiting  the  tax  rate.  The  amount  of  the  State  tax  is  thus 
limited  in  probably  half  the  States,  mostly  Southern  or  Western,  and 
nearly  all  of  them  limit  also  the  amount  of  taxation  to  be  imposed 
by  the  counties,  cities,  towns,  school  districts,  or  for  other  special 
purposes.  In  the  Northeastern  States  such  limitation  is  not  usual, 
though  in  Massachusetts  and  New  York  it  exists  as  to  certain  cities. 
It  may  properly  be  said  of  such  legislation  that  it  does  not  appear  to 
be  so  futile  as  one  might  have  expected.  There  is,  of  course,  a  ten- 
dency to  raise  the  limit,  involving  frequent  constitutional  amend- 
ment, or,  in  Massachusetts,  for  instance,  where  the  limitation  is  put 
on  only  by  statutes,  by  later  statutes  authorizing  the  borrowing  outside 
of  the  debt  limit ;  for  it  should  be  said  that  such  limitations  do  usually 
apply  both  to  the  appropriations  and  to  the  funded  indebtedness  in- 
curred. Still  I  have  not  observed  in  the  last  twenty  years  any  repeal 
of  such  laws  or  constitutional  provisions,  but  rather  an  increasing 
number  of  States  adopting  them,  from  which  it  may  be  inferred  that 
they  work  satisfactorily.  Nearly  all  the  States  purport  to  tax  the 
capital  value  of  both  real  and  personal  property,  not,  as  in  England, 
rents  or  incomes;  and  they  tax  "tangibles"  and  also  "intangibles." 
That  is  to  say,  they  undertake  to  tax  stocks  or  bonds  or  mortgage 
debts  ;  the  evidence  of  property,  as  well  as  the  property  itself ;  and  the 
debt  as  well  as  the  property  securing  it.  Some  States,  such  as  Pennsyl- 
vania, impose  a  smaller,  more  nominal,  tax  upon  stocks  and  bonds 
in  the  hands  of  the  owner,  for  the  sake  of  getting  a  larger  return,  but  in 
many  States,  such  as  Massachusetts,  this  legislation  would  be  Un- 
constitutional, as  not  proportional  taxation. 

There  is  a  mass  of  legislation  every  year  directed  to  the  assessing  and 
collecting  of  taxes,  tending  more  and  more  to  become  inquisitorial, 
requiring  the  taxpayer  under  oath  to  furnish  full  schedules  of  his 
property,  with  provision  for  an  arbitrary  assessment  if  he  fails  to  do  so. 
One  effect  of  this  has  been  to  drive  very  wealthy  men  from  Ohio  or 
other  Western  States  to  a  legal  residence  in  the  East,  where  the  laws 
are  more  lenient,  or  their  enforcement  more  lax.  The  problem  is  a 
most  important  one  and  I  see  no  signs  yet  of  any  solution  in  the  in- 
creasing mass  of  legislation  one  finds  upon  this  subject  every  year. 
It  is  to  be  noted  —  what  our  socialist  friends  have  never  seemed  to 
observe  —  that  just  in  so  far  as  a  man's  earnings  or  income  are  taken 
from  him  in  the  form  of  taxation,  you  are  already  in  a  state  of  socialism. 
That  is  to  say,  to  that  extent  is  his  income  taken  from  him  and  ad- 
ministered by  the  state.  This  is  an  observation  most  unwelcome 
to  the  opponents  of  capitalism,  so-called,  who  resent  the  conclusion 
that  if  the  State  and  Federal  governments  are  already  taking  forty 


TO   THE   NEWER    DEMANDS  59 

per  cent  of  his  income  from  him,  a  state  of  perfect  socialism  could  do 
no  more  than  take  the  other  sixty  per  cent.  This  whole  problem  of 
taxation,  indeed,  is  evaded  at  present  only  by  the  miserable  solution 
of  fraud ;  hardly  any  one,  except  the  non-propertied  classes,  paying 
what  the  law  purports  to  take  from  them ;  and  the  non-propertied 
classes  only  pay  it  because  their  taxation,  being  indirect,  is  paid  for 
them  by  others. 

Coming  to  other  forms  of  taxation,  we  may  distinguish  three : 
Income,  succession,  and  license.  Income  taxation  in  England  dates, 
it  is  said,  from  1435  ;  but  (in  the  shape  of  tithes)  it  is  far  older.  The 
power  of  income  taxation  (except  upon  earnings  and  profits)  belongs 
here  only  to  the  States ;  just  as  the  sole  power  of  imposing  duties  on 
imports  is  given  to  the  Federal  government.  Many  of  the  States 
impose  anincome  tax,  but  I  observe  no  particular  increase  in  that  kind 
of  taxation  in  the  last  twenty  years.  A  man's  income  is  commonly 
taxed  with  his  other  property.  It  is  a  form  of  tax  far  more  evaded 
here  than  in  England,  probably  because  the  English  law  provides  a 
machinery  for  collecting  a  large  part  of  income  taxation  from  the 
persons  from  whom  the  income  is  derived,  as,  for  instance,  from  the 
tenant  who  pays  rent  to  a  landlord ;  just  as  with  us  a  corporation  is 
made  to  pay  the  tax  on  its  capital  stock  nominally  due  from  the  in- 
dividual owner.  The  only  notable  extension  of  income  tax  legislation 
is  in  the  establishment  of  the  principle  of  the  graded  income  tax,  which 
is  beginning  to  be  adopted  in  a  few  States,  as  in  North  and  South 
Carolina  in  1897. 

This  principle  of  graduated  taxation  has,  however,  been  nearly 
universal  in  our  next  and  more  modern  variety  —  the  succession  tax. 
The  old  English  precedents  are  the  "aids"  and  fanes  for  alienation. 
But  beginning  here  about  1893,  this  form  of  taxation  has  now  been 
adopted  by  nearly  all  the  States,  the  amount  of  the  tax  being  graded 
both  according  to  the  relation  of  the  inheritors  to  the  person  from  whom 
the  succession  is  derived,  and  according  to  the  amount  of  the  in- 
heritance itself ;  the  rate  of  the  tax  thus  varying  all  the  way  from  an 
absolute  exemption,  as  to  the  wife  or  children,  to  a  tax  as  high  as 
twenty-five  per  cent  (in  New  York)  in  the  case  of  large  estates  going 
to  remote  relatives.  The  Federal  inheritance  tax  imposed  at  the  time 
of  the  Spanish  War  was  soon  repealed,  and  this  domain  of  taxation,  with 
the  income  tax,  is  now  almost  universally  employed  by  the  States.  The 
principle  itself  can  hardly  be  carried  much  farther,  but  it  will  be  neces- 
sary to  have  some  understanding  or  arrangements  between  the  States, 
whereby  double  or  treble  succession  taxes  are  not  imposed  on  the  same 
estate,  as  notably  in  the  case  of  the  stock  or  bonds  of  railroads  char- 
tered in  several  States,  all  of  which  may  undertake  to  impose  full 
succession  taxes  upon  such  stock.  It  has  been  held  that  succession 
taxes  may  be  graded  even  in  cases  where  a  State  constitution  provides 


6o     THE  RESPONSE   OF  LEGISLATURES   AND   COURTS 

for  proportionate  taxation,  the  tax  being  an  excise  tax  and  not  a 
direct  property  tax ;  but  this  is  not  so  in  respect  to  income  taxes.  We 
may  assume  therefore  that  income  taxes  must  be  equal  in  States  which 
have  this  constitutional  provision,  although  in  one  or  two  of  them 
recent  statutes  have  exempted  a  portion  of  the  income  of  veterans  of 
the  Civil  War.  This  might  be  sustained  as  a  pension,  pensions  being 
for  actual  military  service  constitutional,  and  are  in  the  Southern 
States  expressly  permitted  to  Confederate  soldiers  and  their  families  — 
despite  the  implied  prohibition  of  the  Fourteenth  Amendment. 

The  last  form  of  taxation,  that  of  an  excise  upon  licenses  or  trades, 
is  most  usual  in  the  South.  An  increasing  number  of  trades  are  thus 
being  taxed  or  regulated.  Sometimes  the  taxation  is  put  under  the 
guise  of  a  fee  for  examination  and  licensing,  sometimes  plainly  as  an 
excise  tax.  Undoubtedly  such  taxation  is  against  all  the  history  of 
our  legislation  demanding  complete  freedom  of  labor  and  trade. 
Nevertheless,  it  has  not  been  held  unconstitutional  by  the  States 
except,  of  course,  when  touching  a  trade  which  is  interstate  commerce, 
though  the  examination  occasionally  has  been.  Such  taxation  has  not 
yet  become  popular  in  the  North,  except  definitely  for  the  purpose  of 
examination  and  license ;  but  it  is  almost  universal  in  the  South,  many 
States  indeed  providing  by  their  constitution  or  laws  that  all  trades 
and  callings  may  be  thus  taxed.  These  taxes  may  be  arbitrary  in 
amount,  but  are  sometimes  graded  according  to  the  amount  of  business 
done.  Such  legislation  has  been  sustained  in  so  far  as  it  is  a  tax  or 
a  license  imposed  for  protecting  the  public  health  in  a  reasonable 
manner;  thus,  doctors,  plumbers,  nurses,  dentists,  etc.,  have  been 
submitted  to  such  regulation,  but  in  the  case  of  blacksmiths  its  con- 
stitutionality was  in  one  State  denied,  and  the  law  as  to  barbers  in 
several  States  annulled.  Nevertheless,  it  will  always  be  a  popular 
method  of  raising  money  in  the  poorer  States,  where  land  already 
bears  its  full  burden  and  little  personal  property  can  be  found. 

Commissions  of  inquiry  on  this  whole  subject  of  taxation  are  con- 
tinually being  appointed  —  we  have  had  two  in  Massachusetts  in  the 
past  ten  years  —  and  their  recommendations  nearly  always  prove 
unacceptable.  The  probable  scientific  answer,  that  you  must  only 
tax  property,  and  not  money  or  the  evidence  of  property,  and  that  if 
direct  taxation  thereby  becomes  too  burdensome  we  must  reduce  our 
rate  of  expenditure,  is  a  conclusion  our  legislators  are  yet  unwilling 
to  accept.  The  taxation  of  corporations  presents  a  different  problem 
and  we  shall  therefore  leave  it  for  special  consideration  with  that  sub- 
ject. The  matter  of  betterment  taxes  may  be  dismissed  with  a  word, 
as  it  is  hardly,  in  theory,  taxation  at  all,  but  rather  using  municipal 
agencies  to  collect  the  cost,  or  part  of  the  cost,  or  a  local  work  or 
benefit.  It  is,  of  course,  closely  connected  with  the  subject  of  eminent 
domain.    That  is  to  say,  only  a  public  use,  or  at  least  a  general  local 


TO  THE  NEWER  DEMANDS  6i 

benefit,  can  justify  a  betterment  tax.  There  is  still  considerable 
legislation  on  this  matter,  confined  generally  to  the  objects  of  securing 
a  jury  trial,  or  at  least  a  public  hearing,  on  the  amount  of  the  assess- 
ment, defining  the  purposes  for  which  it  may  be  imposed,  as,  for  in- 
stance, paving,  sewers,  waterworks,  where  public,  and  —  perhaps  the 
most  contested  case  of  all  —  that  of  parks  or  pleasure-grounds ;  and 
providing  that  the  amount  of  betterment  taxes  imposed  shall  not 
exceed  one  half  the  value  of  the  improvement  of  the  property,  and  shall 
never  exceed  the  amount  paid  as  damages  when  part  of  the  owner's 
land  is  taken. 

By  far  the  greatest  mass  of  legislation  relating  to  property  is  con- 
cerned with  the  police  power  and  modern  extensions  thereof.  It  is 
also  by  far  the  most  dangerous  to  property  rights,  and  this  for  several 
reasons :  firstly,  it  involves  the  destruction  of  property  without  any 
compensation  whatever,  not  upon  payment  of  damages,  as  in  the  case 
of  eminent  domain ;  secondly,  on  account  of  the  extraordinary  ex- 
tension by  our  modern  legislation  of  this  power  to  matters  not  hitherto 
deemed  necessary  for  the  safety,  health,  or  even  the  well-being  of  the 
public,  vague  as  the  legal  application  of  the  last  word  is  ;  thirdly,  and 
perhaps  most  important,  because  the  police  power  is  usually  exercised 
without  any  common-law  guarantees,  without  process  of  law,  or  jury 
trial,  but  by  the  arbitrary  ruling  of  some  board,  or  even  single  com- 
missioner, and  often,  so  far  as  the  statute  is  concerned,  without  a 
jury  or  even  an  appeal  from  the  commissioner's  ruling  to  any  court 
of  law. 

I  believe  this  to  be  the  most  dangerous  tendency  that  now  confronts 
the  American  people  —  government  by  commission,  tenfold  more 
dangerous  than  "government  by  injunction."  Not  only  is  there  no 
liberty,  no  appeal  to  common  right  and  the  courts,  but  all  permanent 
"boards"  tend  to  become  narrow  and  pedantic  or,  worse,  to  be  con- 
trolled by  the  works  they  are  created  to  control. ^  The  constitutional- 
ity of  such  boards  is,  of  course,  always  questionable,  but  the  tendency 
to  create  them  is  perhaps  the  most  striking  thing  in  modern  American 
legislation.  Not  only  do  we  find  them  in  enormously  increased  num- 
bers in  all  the  States,  but  even  a  late  President  of  the  United  States 
seriously  recommended  that  the  contracts  and  affairs  of  all  corporations 
at  least  (and  the  bulk  of  modern  business  is  done  in  corporate  form) 
should  be  so  submitted  to  the  control  or  dictation,  or  even  the  nullifi- 
cation, of  such  an  administrative  board  or  commission,  and  this  again 
with  no  appeal  to  the  courts.  So  audacious  an  upsetting  of  all  Anglo- 
Saxon  ideas  of  the  right  to  law,  it  may  be  said  without  exaggeration, 

1  Two  singular  instances  happened  only  the  past  year :  at  common  law  any  one  may 
build  railroads,  and  they  are  certainly  for  the  general  advantage  whether  profitable  to  the 
owners  or  not.  Yet  the  railroad  commissions  of  New  York  and  Massachusetts  have  recently 
in  each  State  prevented  the  building  of  most  important  lines,  by  responsible  applicants  — 
under  the  opposition  of  other  railroads. 


62     THE   RESPONSE   OF  LEGISLATURES   AND   COURTS 

has  never  been  attempted  in  the  history  of  the  English  people,  not 
even  by  the  Stuart  kings,  who  were  most  of  all  disposed  to  interfere 
in  such  particulars.  Wiser  counsels  deterred  the  administration 
from  insisting  on  this  measure,  but  the  fact  that  it  could  be  brought 
up,  and  that  with  the  approval  of  a  large  portion  of  the  public,  indi- 
cates how  radical  our  legislation  is  getting  to  be  in  this  particular. 

It  is  a  common  place  in  the  law  that  no  court  has  defined,  or  ever 
will  consent  to  define,  the  exact  limits  of  this  police  power;  suffice 
it  to  say  that  in  the  classic  words  of  Chief  Justice  Shaw  of  Massa- 
chusetts, "it  is  all  that  makes  for  the  health,  safety,  or  comfort  of  the 
people."  As  to  the  health  and  safety,  there  can  be  little  question ; 
but  when  it  comes  to  indefinite  words  like  "comfort"  or  "well-being," 
too  wide  a  field  is  left  for  the  imagination.  It  has  recently  been  de- 
cided that  the  jesthetic  part  of  life  does  not  necessarily  concern  the 
comfort  or  well-being  of  the  people.  That  is  to  say,  laws  forbidding 
the  use  of  land  for  the  erection  of  hideous  signs,  or  forbidding  the 
height  of  buildings  at  an  inartistic  excess  have  been  declared  not  to 
fall  within  the  police  power,  but  under  eminent  domain.  So  of 
statutes  forbidding  the  taking  of  a  man's  picture,  or  a  woman's 
portrait  for  advertising  purposes,  when  not  properly  obtained ;  yet 
it  may  be  questioned  if  any  law  is  more  certainly  for  the  comfort 
of  the  persons  concerned  than  such  a  statute.  On  the  other  hand, 
noisy  or  noxious  trades,  mosciuito  ponds,  trees  infected  with  moths, 
etc.,  sawdust  in  water,  oiTensive  smoke,  and,  in  Vermont,  signs,  were 
all  made  nuisances  by  statute  of  one  State  or  other  in  1905  alone. 
The  first  historical  instance,  perhaps,  of  destruction  of  property  under 
the  police  power  was  the  blowing  up  of  buildings  to  check  a  conflagra- 
tion, a  practice  still  common,  although  its  utility  was  much  questioned 
after  the  Boston  fire,  and  which,  at  common  law  at  least,  gave  the 
owner  no  right  to  compensation  ;  but  the  more  usual  use  of  the  police 
power  until  very  recent  years  has  been  limited  to  the  prohibition  of 
offensive  trades  in  certain  localities,  and  the  suppression  of  public 
nuisances.  Later,  the  prohibition  of  the  manufacture  of  intoxicating 
or  malt  liquors,  and  the  regulation  of  tenement  houses  at  the  orders 
of  the  Board  of  Health.  This  led  to  the  regulation  or  prohibition  of 
certain  trades  conducted  in  tenement  houses  or  in  sweat  shops,  and 
to  other  matters  which  we  shall  find  it  more  convenient  to  consider 
under  the  head  of  labor  legislation. 

Whether  there  are  any  limits  to  this  power  is  much  discussed. 
There  is  no  question  that  the  power  must  not  be  arbitrary  or  utterly 
without  reason,  and  of  that  reason  the  courts  must  and  do  in  fact  judge. 
Taking  property  for  a  purpose  unjustified  by  the  police  power  is,  of 
course,  taking  property  without  due  process  of  law.  An  arbitrary 
statute  taking  the  property  of  A  and  giving  it  to  B,  or  even  to 
the  public,  without  compensation  has,  from  the  time  of  Lord  Coke 


TO  THE  NEWER  DEMANDS  63 

himself,  been  the  classic  definition  of  an  unjustifiable  law  and  one 
which  with  us  at  least  is  unconstitutional ;  but  our  courts  wisely  refuse 
to  judge  if,  when  a  proper  police  motive  is  disclosed  in  the  statute, 
it  is  the  best  method  of  effecting  the  result.  This,  I  think,  is  a  clear 
statement  of  the  principle  of  our  court  decisions.  If,  upon  the  face 
of  the  statute,  the  court  can  see  no  possible  relation  to  the  public 
health  or  safety,  or,  possibly,  general  welfare,  it  will  hold  the  law  null 
in  so  far  as  it  invades  either  property  or  liberty  rights  because  not 
under  the  police  power.  If,  on  the  other  hand,  they  can  see  some 
relation  to  the  public  health,  safety,  or  general  welfare,  even  though 
they  do  not  think  it  the  best  method  of  bringing  about  the  desired 
result,  they  will  not  presume  to  run  counter  to  legislative  opinion. 
Of  the  expediency  of  the  statute,  the  legislature  must  be  and  is  the 
final  judge. 

With  us  the  police  power  is  exercised  largely  for  moral  reasons. 
That  is  to  say,  the  great  instances  of  its  extension  have  been  connected 
with  moral  or  sanitary  reform.  No  doubt  the  police  power  may 
broaden  with  advancing  civilization  and  more  complex  appliances 
and  possibly  greater  medical  knowledge  and  social  solidarity.  No 
doubt  purposes  which  were  once  lawful  may  be  unlawful,  and  property 
devoted  to  them  thus  be  destroyed  by  a  change  in  the  law.  Mr. 
Justice  Brewer,  of  our  Supreme  Court,  holding  the  contrary  view, 
was  overruled  by  the  majority,  and  that  decision  is  final.^  Not  only 
we,  but  a  State,  may  not  even  make  a  contract  which  shall  be  immune 
from  future  extension  of  the  police  power,  the  Dartmouth  College 
case  notwithstanding.  For  instance,  the  State  of  Massachusetts 
in  1827  granted  a  perpetual  franchise  to  a  corporation  to  make  beer. 
It  was  allowed,  forty  years  later,  to  pass  a  law  that  no  corporation 
should  make  beer,  and  the  brewery  became  valueless.  The  State  of 
Minnesota  granted  a  perpetual  franchise  to  a  railroad  to  fix  its  own 
fares.  Twenty  years  later  it  took  away  that  right,  thereby,  as  claimed, 
making  the  railroad  property  valueless ;  the  railroad  has  no  remedy. 
A  man  in  Connecticut  had  barrels  of  whisky  in  a  cellar  for  many 
years,  but  the  State  was  allowed  to  pass  a  law  prohibiting  its  sale ; 
which  of  course,  had  he  been  a  teetotaler,  would  have  deprived  that' 
praperty  of  all  value,  and  in  any  case,  of  all  exchange  value.  A  man 
in  Iowa  owns  one  glass  of  whisky  for  several  years,  and  then  a  law 
is  passed  forbidding  him  to  sell  it ;  the  law  is  valid.  A  youth  in 
Nebraska  buys  tobacco  and  paper  and  rolls  a  cigarette.  The  State 
afterward  passes  a  law  forbidding  smoking  by  minors.  It  is  a  crime 
if  he  light  it.  Sufficient  has,  perhaps,  been  said  to  show  the  extraor- 
dinary scope  and  elasticity  of  this,  the  widest,  vaguest,  and  most 
dangerous  domain  of  our  modern  legislation,  though  perhaps  we  should 
add  one  or  two  striking  cases  affecting  personal  hberty,  as,  for  instance, 

1  Mugler  vs.  Kansas,  123  U.S.  623. 


64     THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

a  citizen  of  Pennsylvania  marries  his  first  cousin  in  Delaware  and 
returns  to  Pennsylvania,  where  the  marriage  is  void  and  he  becomes 
guilty  of  a  criminal  offense ;  a  white  man  in  Massachusetts  who  marries 
a  negress  or  mulatto  may  be  guilty  of  the  crime  of  miscegenation  in 
other  States ;  a  woman  might  work  fifty-eight  hours  a  week  in  Rhode 
Island,  but  if  she  work  over  fifty-six  in  Massachusetts  may  involve 
her  employer,  as  well  as  herself,  in  a  penal  offense. 

The  most  valuable  of  all  police  legislation  is,  of  course,  that  to  pro- 
tect public  health  and  safety ;  and  prominent  in  the  legislation  of  the 
last  twenty  years  are  the  laws  to  secure  pure  and  wholesome  food  and 
drugs.  Possibly,  "wholesome"  is  saying  too  much,  for  our  legislative 
intelligence  has  not  yet  arrived  at  an  understanding  of  the  danger 
from  cold  storage  or  imperfectly  canned  food,  though  Canada  and 
other  EngUsh  colonies  have  already  legislated  on  the  subject,  to  say 
nothing  of  our  tariff  war  with  Germany  on  the  point.  One  may  guess 
that  ninety-nine  per  cent  of  the  present  food  of  the  American  people, 
leaving  out  the  farmers  themselves,  is  of  meat  of  animals  which  have 
been  dead  many  months,  if  not  years,  and  from  vegetables  which  date 
at  least  many  months  back.  It  is  nonsense  to  suppose  that  such  food 
is  equally  wholesome  with  fresh  food,  or  that  there  is  not  considerable 
risk  of  acute  poisoning  or  a  permanent  impairment  of  the  digestive 
system.  Senator  Stewart,  of  Nevada,  has  shown  that  nearly  fifty 
per  cent  of  the  soldiers  of  the  Spanish  War  had  permanent  digestive 
trouble,  as  against  less  than  three  per  cent  in  the  Civil  War,  which 
took  place  before  cold-storage  food  was  known,  or  canned  food  largely 
in  use.  It  was  hopeless  for  the  States  to  act  until  there  was  Federal 
legislation  on  the  subject,  as  the  health  authorities  had  no  constitu- 
tional power  over  goods  imported  from  other  States  ;  but  the  passage, 
under  Roosevelt,  of  a  national  food  and  drugs  act  has  given  a  great 
impetus  to  the  reform,  and  by  this  writing  more  than  half  the  States 
have  passed  pure-food  laws,  being  usually,  as  they  obviously  should 
be,  an  exact  copy  of  the  Federal  Act.  Among  the  articles  specially 
mentioned  in  such  legislation  we  find  candy,  vinegar,  meat,  fertilizers, 
milk,  butter,  spices,  sugar,  cotton  seed,  formaldehyde,  insecticide, 
and  general  provisions  against  adulteration,  false  coloring,  the  use  of 
colors  and  preservatives,  etc. 

Going  from  matters  merely  unwholesome  to  actual  poisons,  the 
course  of  legislation  on  intoxicating  liquors  is  too  familiar  to  the  reader 
to  make  it  necessary  to  more  than  refer  to  it,  with  the  general  observa- 
tion that  in  the  North  and  East  the  tendency  has  been  toward  high 
licensing  or  careful  regulation,  always  with  local  option ;  while  in  the 
West  originally,  and  now  in  the  South,  the  tendency  is  to  absolute 
"Statewide"  prohibition  and  even  to  express  this  principle  in  the 
constitution.  How  much  this  extreme  measure  is  based  on  the  racial 
question,  in  the  South  at  least,  is  a  matter  of  some  debate ;   and  the 


TO  THE  NEWER  DEMANDS  65 

working  of  such  laws  everywhere  from  Maine  to  Georgia,  of  con- 
siderably more.  One  may  hazard  the  guess  that  the  wealthier  classes 
have  no  difficulty  in  getting  their  liquor  through  interstate  commerce, 
while  the  more  disreputable  classes  succeed  in  getting  it  surreptitiously. 
Prohibition,  therefore,  if  effective  at  all,  is  probably  only  effective 
among  the  respectable  middle  class  where,  perhaps,  of  all  it  is  least 
needed.  In  the  older  States,  at  least  in  Massachusetts,  there  has  been 
a  decided  tendency  away  from  prohibition  in  the  last  twenty  years, 
and  even  from  local  prohibition  in  the  larger  cities.  Worcester,  for 
instance,  after  being  the  largest  prohibition  city  in  the  world,  ceased  to 
be  so  this  year  by  the  largest  vote  ever  cast  upon  the  question. 

Whatever  may  be  said  of  the  strict  prohibition  of  liquor  dealing, 
no  one  can  have  an  objection  to  such  laws  as  applied  to  cocaine,  opium, 
or  other  poisonous  drugs,  and  we  find  statutes  of  this  sort  in  increasing 
number;  while  the  manufacture  and  sale  of  cigarettes  to  minors 
or  even,  in  some  States,  their  consumption,  is  strictly  prohibited,  under 
criminal  penalty.  Laws  of  a  similar  sort  were  aimed  at  oleomargarine 
when  invented,  but  this  probably  not  so  much  to  protect  the  health  of 
the  people  as  the  prosperity  of  the  dairymen.  The  mass  of  such 
legislation  has  emerged  from  the  scrutiny  of  the  courts.  State  and 
Federal,  with  the  general  result  that  only  such  laws  will  be  sustained 
as  are  aimed  to  prevent  fraud ;  but  the  manufacture  and  sale  of  oleo- 
margarine under  that  name  cannot  be  prohibited.  Artificial  coloring 
matter  may  be  forbidden,  but  a  New  Hampshire  law  was  not  sustained 
which  required  all  oleomargarine  to  be  colored  pink ;  so  it  may  be 
guessed  that  the  laws  of  those  States  which  make  criminal  the  sale 
or  use  of  cigarettes  to  or  by  children  ^'apparently''  less  than  sixteen  or 
eighteen,  will  hardly  be  sustained  as  a  constitutional  police  measure ; 
yet  such  laws  existed  in  1890,  while  the  State  of  Washington  in  1893 
made  the  sale  even  of  cigarette  paper  criminal. 

Another  important  line  of  modern  legislation  consists  in  the  sub- 
jecting of  trades  to  a  license  for  the  purpose  of  examination  (the  tax 
feature  has  been  discussed  above).  Such  laws  are  constitutional  when 
applied  to  a  trade  really  relating  to  the  public  health,  but  as  we  have 
found  above,  blacksmithing  is  not  such  an  one ;  when  imposed  merely 
for  the  purpose  of  raising  revenue,  such  legislation  is  undoubtedly 
constitutional  under  our  written  constitutions,  but  opposed  to  historic 
English  principles,  which  insisted  for  seven  centuries  of  statute-making 
on  the  utmost  liberty  of  trade.  In  a  South  American  republic  you 
have  to  get  a  concession  before  going  into  almost  any  business,  even 
inaintaining  a  shoe  shop,  or  a  milk  farm,  which  concession  is,  of 
course,  often  obtained  by  bribery  or  withheld  for  corrupt  reasons. 
It  is  to  be  hoped  that  the  citizens  of  our  States  will  never  find  them- 
selves in  that  predicament.  Still,  certain  State  constitutions,  as  that 
of  South  Carolina,  provide  absolutely  that  all  trades  may  be  subject 


66     THE   RESPONSE  OF  LEGISLATURES   AND   COURTS 

to  a  tax,  and  the  tendency  —  particularly  in  the  South  —  to  raise 
revenue  in  this  way  is  increasing  by  leaps  and  bounds.  Among  the 
trades  already  subjected  to  such  licensing  or  taxing,  we  find  doctors, 
of  course,  and  properly,  pharmacists,  plumbers,  peddlers,  horseshoers, 
osteopaths,  dentists,  veterinary  surgeons,  accountants,  bakers,  junk 
dealers,  coal  dealers,  optometrists,  architects,  barbers,  commission 
merchants,  embalmers,  and  nurses.  Of  course  it  is  a  motive  to  novel 
or  irregular  trades  to  secure  a  licensing  law  from  the  State,  for  the 
slight  tax  insures  them  protection.  This  is  the  reason  that  we  find 
common  statutes  allowing  osteopaths,  etc.,  to  be  licensed.  So  far 
as  I  have  observed,  there  is  no  such  statute  as  yet  in  any  State  applying 
to  Christian  Scientists. 

Police  regulation  for  the  safety  of  the  public  is  found  nearly  entirely 
in  the  laws  regulating  labor,  factories,  mines,  or  machinery,  and  will 
be  accordingly  treated  in  that  connection.  Laws  protecting  the  public 
against  fraud,  which  from  earliest  times  has  been  a  branch  of  police 
legislation,  have  been  of  late  years  numerous,  principally  in  connection 
with  the  prohibition  of  dealing  in  futures  or  sales  on  margin,  of  sales 
of  goods  in  bulk  without  due  precautions  and  notice  to  creditors,  of 
the  issue  of  trading  stamps  or  other  device  tending  to  mislead  the  pub- 
lic. Some  States  have  prohibited  department  stores,  but  this  legisla- 
tion has  been  held  unconstitutional,  though  the  early  English  labor 
statutes  forbidding  to  any  person  more  than  one  trade  or  mystery  will 
by  the  historical  student  be  borne  in  mind.  Usury  laws,  of  course, 
are  stUl  frequent,  but  decreasing  in  number  with  the  increasing 
modern  tendency  to  allow  freedom  of  contract  in  this  as  in  other 
matters,  except  only  to  such  persons  as,  for  instance,  pawn-brokers, 
who  peculiarly  require  police  regulation. 

Coming  to  statutes  which  merely  facilitate  business  as  it  now  exists, 
by  far  the  most  important  movement  has  been  the  successful  work  of 
the  State  Commissioners  on  Uniformity  of  Law  in  getting  their 
negotiable  instrument  act  passed  in  nearly  all  the  States,  and  in  several 
already  their  uniform  law  statute  on  sales,  only  recommended  in  1907. 
Some  progress  has  been  made  in  getting  a  uniform  standard  of  weights 
and  measures,  and  there  is  an  increasing  tendency  to  prescribe  specific 
weights  and  markings  for  packages  —  possibly  unconstitutional  legis- 
lation. Still  more  important  as  a  change  in  previously  existing  law 
has  been  the  increasing  tendency  to  make  documents  other  than  bUls 
and  notes  negotiable.  Perhaps  this  is  a  matter  which  requires  ex- 
planation to  the  lay  reader. 

The  early  Anglo-Saxon  law  could  not  conceive  of  ownership  of  prop- 
erty as  distinct  from  possession,  and  to  their  simple  minds,  when 
ownership  was  once  acquired  it  was  impossible  to  divest  the  owner 
of  his  property  by  any  symbolical  delivery.  Hence  the  very  early 
statutes  making  fraudulent  sales  or  conveyances  of  property  without 


TO  THE   NEWER   DEMANDS  67 

actual  and  visible  change  of  possession.  The  notion  of  a  symbol, 
a  paper  or  writing,  which  should  represent  that  property  would  prob- 
ably have  impressed  them  like  a  spell  or  charm  in  a  child's  fairy  tale. 
Even  theft  with  asportation  could  not  alter  property  rights,  even  in 
favor  of  innocent  purchasers,  when  the  owner  did  not  intend  to  part 
therewith.  A  moment's  recollection  of  what  is  now  perhaps  the 
most  familiar  of  Teutonic  saga  to  the  ordinary  reader,  the  text  of 
Wagner's  "Ring  of  the  Nibelung,"  will  give  ample  evidence  of  that 
mental  attitude.  But  the  Oriental  mind  was  far  more  subtile.  To 
the  Jews  or  Lombards  we  owe  the  discovery  of  that  hill  of  exchange  — 
the  first  of  negotiable  instruments,  and  the  first  historically  to  bring 
into  our  law  the  legal  concept  of  a  symbol  of  ownership  which  might 
be  instantly  transferred  with  an  absolute  change  of  title  in  the  prop- 
erty thereby  represented,  and  this  either  to  a  present  transferee  or 
to  one  far  away.  Thus,  a  simple  bill  of  exchange  might  transfer  the 
ownership  in  a  pile  of  gold  in  a  moment  from  a  man  in  Venice  to  a 
man  in  London,  thereby  (if  the  law-merchant  was  respected)  freeing 
the  treasure  from  attack  at  the  hands  of  the  Venetian  authorities. 
And  not  only  was  this  change  of  ownership  instantaneously  effected 
by  the  transfer  of  some  symbol  or  document  representing  it,  but  tlTere 
also,  and  as  a  necessary  part  of  the  invention,  grew  up  the  doctrine 
that  the  transferee  was  relieved  of  any  claims  against  the  property 
at  the  hands  of  the  previous  owner.  This  is  what  we  mean  by  negoti- 
able ;  and  it  is  essential  that  the  precise  meaning  of  the  word  should 
be  understood  if  we  are  to  understand  the  importance  of  this  legisla- 
tion. Even  most  business  men  have  a  very  vague  understanding  of 
the  difference  between  negotiable  and  assignable.  Substantially  all 
property  and  choses  in  action  are  assignable,  except  personal  con- 
tracts ;  and  in  ordinary  business  many  of  them  are  assumed  to  be 
negotiable,  such  as  bills  of  lading,  warehouse  receipts,  trust  receipts, 
or  certificates  of  stock.  Most  brokers,  or  even  bankers,  assume  that 
when  they  have  a  stock  certificate  duly  endorsed  to  them  by  the  owner 
mentioned  on  its  face  they  have  an  absolute  and  unimpeachable  title  to 
the  stock  therein  represented.  Such,  of  course,  is  not  the  case  except 
for  recent  statutes  in  a  few  States.  To  take  a  familiar  example,  and 
I  think  of  none  better  to  show  exactly  the  difference  between  a  personal 
contract  non-assignable,  a  document  which  is  assignable,  and  one  which 
is  negotiable  —  a  Harvard- Yale  football  ticket.  If  the  ticket  is 
issued  by  the  management  to  a  person  under  his  name,  with  a  condi- 
tion that  it  shall  be  used  by  no  one  else,  it  is  a  contract  non-assignable. 
If  it  is  issued  to  him  in  the  same  manner,  but  with  no  provision  against 
assignment  or  the  use  by  another  person,  it  would  entitle  such  other 
person  to  whom  the  ticket  was  given  to  use  the  seat,  but  only  under 
the  title  of  the  original  holder ;  and  if  the  assignment  was  later  for- 
bidden, or  for  other  reasons  the  right  recalled  by  the  management, 


68     THE   RESPONSE  OF  LEGISLATURES  AND   COURTS 

the  holder  would  have  no  greater  title  to  the  seat ;  the  contract  is 
assignable,  but  not  negotiable.  The  assignee  takes  it  merely  as  stand- 
ing in  the  place  of  the  original  holder  and  subject  to  all  the  equities 
between  him  and  the  management.  If,  for  instance,  the  ticket  were 
given  him  by  fraud,  the  right  to  use  it  might  be  revoked  and  the 
transferee  would  have  no  greater  right  than  the  original  holder.  But 
if  the  ticket  were  negotiable,  like  a  bank-note  payable  to  bearer,  the 
holder,  not  actually  himself  the  thief,  would  have  an  absolute  title 
to  the  seat  without  regard  to  anything  that  happened  prior  to  his 
getting  possession  of  the  ticket. 

Now  it  is  obvious  that  it  is  for  the  enormous  convenience  of  business 
to  have  business  documents  made  negotiable.  If  a  banker  can 
loan  on  a  bill  of  lading  or  a  warehouse  receipt,  or  a  trader  can  buy  the 
same,  or  if  a  man  can  give  a  trust  receipt  to  his  banker  agreeing  that 
all  his  general  shipments  or  stock  in  trade  shall  be  the  property  of 
that  banker  until  his  debt  is  paid,  it  makes  enormously  for  the  rapid 
turning  over  of  capital,  and  the  extension  of  credit.  Of  course,  an 
enormous  proportion  of  business  in  the  United  States  is  conducted 
upon  credit,  and  without  the  invention  of  the  negotiable  instrument 
those  credits  could  not  be  secured  without  an  actual  delivery  of  the 
commodities  intended  to  secure  them.  And  the  custom  of  business  is 
to  consider  most  such  documents  negotiable  even  when  in  fact  they 
are  not  so.  It  is  more  than  usual  to  loan  money  upon  warehouse 
receipts,  bills  of  lading,  stock  certificates  or  trust  receipts  of  all  descrip- 
tions, regardless  of  the  question  whether  the  law  of  the  State  makes 
them  negotiable.  Hence  the  very  great  tendency  to  make  such 
instruments  negotiable  by  statute;  and  I  find  many  such  laws,  be- 
ginning in  1893  in  North  Carolina,  as  to  warehouse  receipts,  while 
the  Massachusetts  statute  concerning  stock  dates  from  1884. 

A  reaction  to  the  English  common  law  is  the  statute,  common  in 
recent  years,  prohibiting  sales  in  bulk.  It  appears  to  have  been  a 
growing  custom  for  merchants,  particularly  retail  merchants,  when  in 
financial  difficulties  to  sell  their  entire  stock  in  trade  to  some  profes- 
sional purchaser  by  a  simple  bill  of  sale  .without  physical  delivery. 
Nearly  all  States  have  adopted  statutes  against  this  practice,  although 
in  several  they  have  been  held  unconstitutional.  The  feeling  that 
they  are  dishonest  is  doubtless  justified  by  the  facts ;  but  it  may  also 
be  truly  described  as  a  reaction  to  the  simpler  English  law  as  against 
Oriental  innovations. 

The  descent  of  property  throughout  the  United  States  is  regulated  by 
English  common-law  ideas.  That  is  to  say,  there  is  no  primogeniture, 
although  in  early  colonial  times  the  older  son  took  a  double  portion ; 
and  there  is,  except  in  Louisiana,  complete  liberty  of  testamentary 
disposition,  although  in  one  or  two  other  States  there  have  been 
statutes  forbidding  a  man  to  dispose  of  all  his  estate  to  a  charity 


TO  THE   NEWER   DEMANDS  69 

within  a  short  time  previous  to  his  death,  to  the  prejudice  at  least 
of  his  direct  heirs.  The  Code  Napoleon,  of  course,  limits  testamentary 
disposition  in  favor  of  these  latter,  so  in  Louisiana,  only  half  of  a  man's 
estate  can  be  given  away  from  his  children  or  widow,  and  not  more 
than  three-fourths  of  his  estate  can  be  bequeathed  to  strangers  or  to 
charity,  to  the  prejudice  even  of  collateral  heirs. 

In  matters  of  general  business  the  usual  lines  of  legislation  have  been 
the  ordinary  ones  found  in  English  history.  That  is  to  say,  statutes 
of  frauds,  usury  or  interest  laws,  and  other  familiar  matters.  The 
only  tendency  one  can  note  is  a  broad  range  of  legislation  de\dsed  in 
the  interest  of  the  debtor  —  not  only  liberal  insolvency  laws  now  super- 
seded by  the  national  bankruptcy  act,  which  is  still  more  liberal  than 
the  laws  of  the  States  preceding  it,  but  statutes  restricting  or  delaying 
foreclosure  of  mortgages,  statutes  exempting  a  substantial  amount  of 
property,  implements  of  trade,  agricultural  articles,  goods,  land,  or 
even  money,  from  the  claims  of  his  creditors.  The  exemption  of 
tools  or  implements  of  trade  goes  back  to  Magna  Charta,  it  will  be 
remembered,  but  the  exemption  of  other  articles  is  modern  and  Ameri- 
can. There  is  probably,  however,  no  subject  which  is  so  apt  to  be  let 
alone  by  our  legislatures  as  that  of  business  law.  Upon  that  subject, 
at  least,  they  are  fairly  modest  and  inclined  to  think  that  the  laws  of 
business  are  known  better  by  business  men.  Imprisonment  for  debt  is, 
of  course,  absolutely  abolished  everywhere,  and  in  most  States  a 
woman  is  not  subject  to  personal  arrest  in  civil  process.  The  statutes 
prevailing  throughout  the  country,  which  give  special  preference  to 
claims  for  wages  or  even  for  material  furnished  by  "material  men," 
have  already  been  noted.  It  may  be  broadly  stated  that  the  presump- 
tion is  that  such  claims  are  everywhere  a  preferred  debt  to  be  paid  out 
of  the  estate  of  the  insolvent,  living  or  dead,  in  preference  to  all  claims 
except  taxes. 

The  security  of  mortgages  is  very  generally  impaired  by  legislation 
confining  the  creditor  to  only  one  remedy  and  delaying  his  possession 
under  foreclosure.  That  is  to  sayj  in  far  Western  States,  generally, 
he  cannot  take  the  land  or  other  security,  and  at  the  same  time  sue 
the  debtor  in  an  action  for  debt  for  the  amount  due,  or  the  deficiency. 
This,  of  course,  makes  of  a  mortgage  a  simple  pledge.  Moreover, 
with  the  practice  of  delaying  possession  under  foreclosure,  appointing 
receivers  in  the  interest  of  the  debtor,  etc.,  he  is  in  many  States  so  de- 
layed in  getting  possession  of  his  security  that  by  the  time  he  acquires 
it  he  will  find  it  burdened  with  overdue  taxes  and  in  a  state  of  general 
dilapidation.  We  have  already  alluded  to  the  practice  in  California  of 
compelling  the  executor  of  a  mortgage  to  submit  himself  to  the  jurisdic- 
tion of  the  local  public  administrator,  which  practically  results  in  a 
sequestration  of  a  considerable  portion  of  the  property.  For  all  these 
reasons,  many  conservative  lawyers  in  the  East,  at  least,  would  not 


yo     THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

permit  their  clients  to  invest  their  money  in  mortgages  in  California, 
Minnesota,  Washington,  or  the  other  States  indulging  in  such  legisla- 
tion, and  partly  for  this  reason  the  rate  of  interest  prevailing  in  mort- 
gages is  very  much  higher  in  the  far  West  than  it  is  in  States  east  of 
the  Missouri  River. 

The  greatest  mass  of  legislation  is,  of  course,  that  upon  mechanic's 
liens,  which  are  burdensome  to  a  degree  that  is  vexatious,  besides 
being  subject  to  amendment  almost  every  year.  In  a  general  way, 
no  land-owner  is  free  from  liability  for  the  debt  of  any  person  who  has 
performed  labor  or  furnished  materials  on  the  buildings  placed  upon 
the  land,  even  without  the  knowledge  or  consent  of  the  land-owner  in 
some  States,  though  in  one  or  two  instances,  notably  in  California, 
such  legislation  has  been  carried  to  such  an  extreme  as  to  make  it  un- 
constitutional. 

The  matter  of  nuisances  has  been  already  somewhat  covered. 
Legislation  extending  the  police  power  and  declaring  new  forms  or 
uses  of  property  to  be  a  nuisance  is,  of  course,  rapidly  increasing  in 
all  States.  The  common-law^  nuisance  was  usually  a  nuisance  to  the 
sense  of  smell  or  a  danger  to  life,  as,  for  instance,  an  unsanitary  build- 
ing or  drain.  Noise,  that  is  to  say,  extreme  noise,  might  also  be  a 
nuisance,  and  in  England  the  interference  with  a  man's  right  to  light 
and  air.  Legislation  is  now  eagerly  desired  in  many  States  of  this 
country  to  make  in  certain  cases  that  which  is  a  nuisance  to  the  sense 
of  sight  also  a  legal  nuisance,  as,  for  instance,  the  posting  of  offensive 
bills  on  the  fences,  or  the  erection  of  huge  advertising  signs  in  parks 
or  public  highways.  Such  a  law  was,  however,  held  unconstitutional 
in  Massachusetts.  There  is  some  legislation  against  the  blowing  of 
steam  whistles  by  locomotives,  although  I  believe  none  against  the 
morning  whistle  of  factories,  and  some  against  the  emission  of  black 
smoke  in  specified  durations  or  quantities. 

But  perhaps  the  most  important  legislation  affecting  simple  matters 
of  business  other  than  the  line  of  statutes  already  mentioned,  making 
new  negotiable  instruments  and  controlling  the  title  of  property  by 
the  possession  of  a  bill  of  exchange,  bill  of  lading,  warehouse  or  trust 
receipt,  are  those  statutes  prohibiting  the  bu>dng  of  "futures,"  or 
the  enforcement  of  gambling  contracts  to  buy  or  sell  stocks  or  shares 
or  other  commodities  wdthout  actual  or  intended  change  of  possession, 
which  we  have  necessarily  referred  to  in  our  discussion  of  re- 
straint of  trade.  There  is  a  very  decided  tendency  throughout  the 
country,  particularly  in  the  South,  to  prohibit  all  buying  or  selling 
of  futures,  that  is  to  say,  of  a  crop  not  actually  sold,  or  of  any  article 
where  physical  dehvery  is  never  intended,  and  it  ^\dll  be  remembered 
we  found  plenty  of  precedent  for  such  legislation  in  early  English 
statutes.  Gambling  contracts  may  be  forbidden  only  in  specified 
places,  such  as  stock  exchanges;   and  the  buying  of  futures  may  be 


TO  THE   NEWER   DEMANDS  71 

specially  permitted  to  favored  persons,  such  as  actual  manufacturers 
intending  to  use  the  goods ;  and  both  such  statutes  will  be  held  consti- 
tutional and  not  an  undue  interference  with  the  liberty  of  contract. 
These  matters  were  largely  covered  by  the  statutes  of  forestalling  in 
early  times.  Legislation  more  distinctly  modern  is  that  against 
sales  in  bulk,  and  against  department  stores ;  m.ore  striking  still  is 
the  statute,  already  passed  in  Wisconsin  and  Virginia,  forbidding 
all  tips,  commissions,  or  private  advantages  secured  by  any  servant 
or  agent  in  carr}dng  on  the  business  of  his  principal,  his  master,  or  the 
person  with  whom  he  deals  ;  the  statute  even  forbids  a  gratuity  inten- 
tionally given  directly  from  the  one  to  the  other.  It  is  hard  to  see 
how  the  last  clause  of  the  law  can  be  held  constitutional,  any  more  than 
the  laws  forbidding  department  stores,  although  such  commissions 
may  be  forbidden  to  be  given  "unbeknownst." 

Weights  and  measures  are  standardized  by  the  Federal  government, 
and  to  these  standards  the  States  in  practice  all  conform,  but  the  legal 
weight  of  a  bushel  or  other  measure  of  articles  varies  widely  in  the 
different  States,  and  the  State  Commissioners  on  Uniformity  of  Law 
have  tried  in  vain  to  get  the  matter  generally  regulated.  At  one 
time  the  weight  of  a  barrel  of  potatoes  in  New  York  City  was  fourteen 
pounds  more  than  it  was  in  Hoboken,  across  the  river.  In  Massa- 
chusetts the  weight  of  a  barrel  of  onions  was  increased  two  pounds  to 
conform  with  the  uniform  law  recommended  to  all  the  States  by  the 
commissioners ;  but  a  representative  in  the  State  Legislature  coming 
from  a  locality  of  onion  farms  lost  his  seat  in  consequence,  which 
inspired  such  terror  in  other  members  of  the  State  Legislature  that 
the  uniform  law  was  promptly  repealed,  the  weight  of  the  barrel  of 
onions  put  back  at  the  former  figure,  and  this  over  the  veto  of  the 
governor.  It  is  needless  to  say  that  the  whole  value  and  object  of 
the  whole  movement  for  uniformity  is  to  have  actual  uniformity. 
That  is  to  say,  unless  the  lawyer  or  citizen  reading  the  statute  can  be 
sure  that  it  is  uniform  with  the  laws  of  all  other  States  without  taking 
the  trouble  to  consult  them,  the  reform  has  no  value.  But  it  has 
proved  almost  hopeless  to  get  this  through  the  brain  of  the  average 
legislator.  The  uniform  law  upon  bills  and  notes,  indeed,  already 
mentioned,  is  treated  with  more  respect ;  because,  as  has  been  said 
above,  they  regard  that  as  a  matter  of  business,  and  they  have  some 
respect  for  the  expert  knowledge  of  business  affairs  possessed  by 
business  men. 

The  licensing  of  trades  might  be  made  a  very  valuable  line  of  legis- 
lation to  prevent  the  fleecing  of  the  ultimate  consumer  by  the  middle- 
man. Our  ancestors  were  of  the  opinion  that  the  middleman,  the 
regrator,  was  the  source  of  all  evils,  and  they  were  also  of  the  opinion 
that  any  combination  whatever  to  control  the  price  of  an  article  of 
food,  or  other  human  necessity,  or  to  resell  it  elsewhere  than  at  its 


72     THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

actual  market  and  at  the  proper  time,  was  a  conspiracy  highly  criminal 
and  prejudicial  to  the  English  people ;  in  both  of  which  matters  they 
were,  in  the  writer's  opinion,  perfectly  right,  and  far  more  wise  than  our 
modern  delusion  that  "business"  — -that  is  to  say,  the  making  of  a 
little  more  profit  from  the  larger  number  of  people  —  justifies  every- 
thing. Now,  at  the  time  of  the  coal  famine  of  1903,  Massachusetts 
passed  a  statute  licensing  dealers  in  coal ;  the  law  for  the  municipal 
coal-yard  having  been  declared  unconstitutional.  The  object  of  this 
statute  was  not  to  derive  revenue  or  to  restrict  trade,  but  to  regulate 
profits ;  and  in  particular  to  prevent  the  retail  coal-dealers  from 
combining  to  fix  the  price  of  coal  themselves.  Yet  in  spite  of  this 
legislation,  the  ice-dealers  of  Massachusetts  only  this  year  (1910) 
assembled  in  convention  in  Boston  upon  a  call,  widely  advertised  in 
the  newspapers,  that  they  were  holding  the  assembly  for  that  precise 
purpose,  that  is  to  say,  to  fix  and  control  the  price  and  the  output 
of  ice.  They  were,  indeed,  "malefactors  of  great  wealth";  at  least 
we  may  guess  the  latter,  and  the  animus  of  a  more  intelligent  precedent 
may  some  day  hopefully  be  directed  to  such  definite  evils,  of  which  our 
ancestors  were  well  aware,  rather  than  blindly  running  amuck  at  all. 
The  coal-dealers  in  Boston,  by  the  way,  made  the  same  argument  that 
is  always  made,  and  was  made  at  Athens  in  the  grain  combination  of 
the  third  century  B.C.  —  to  wit,  that  they  put  up  the  prices  in  order  to 
prevent  other  people  buying  all  the  coal  and  speculating  in  it ;  but 
notwithstanding  that  showing  of  their  altruistic  motives,  the  secretary 
of  state  revoked  the  license  of  the  coal  company  in  question.  The 
statute  also  forbade  the  charging  extortionate  prices,  which,  again, 
was  a  perfectly  proper  subject  of  legislation  under  the  common  law ; 
but,  unfortunately,  was  carelessly  drawn,  so  that  it  resulted  in  a 
somewhat  cloudy  court  opinion. 

For  the  matter  of  uniform  legislation  the  reader  must  be  referred 
in  general  to  reports  of  the  National  Commission.  Their  greatest 
achievement  has  been  the  code  of  the  law  of  bills  and  notes  just  men- 
tioned. Besides  this  they  have  just  adopted  a  code  on  the  law  of  sales, 
and  they  have  recommended  brief  and  uniform  formalities  as  well  as 
forms  for  the  execution  and  acknowledgment  of  deeds  and  ^\^lls,  and 
have  very  considerably  improved  the  procedure  in  matters  of  divorce. 

The  best  modern  legislation  concerning  trade  and  business  is,  of 
course,  that  of  the  pure-food  laws.  The  Federal  law  has  certainly 
proved  effective,  although  it  is  in  danger  of  being  repealed  or  emascu- 
lated in  the  interest  of  the  "special  interests"  ;  most  of  the  State  laws 
simply  copy  it.  Undoubtedly  the  laws  should  be  identical  in  inter- 
state commerce  and  in  all  the  States ;  and  this  can  only  be  done  by 
voluntary  uniform  action. 


TO  THE   NEWER   DEMANDS  73 


THE   COURTS   AND   PROPERTY 

By  Charles  F.  Emerick,  Smith  College,  Northampton,  Mass. 

(From  a  Series  of  Articles  on  the  Struggle  for  Equality  in  the  United  States. 
Popular  Science  Monthly,  Dec.  1913-June,  1914) 

The  constitutional  safeguards  which  surround  private  property  in 
the  United  States  are  exceptionally  strong.  Between  confiscation 
and  the  multitude  stand  the  state  and  the  federal  courts.  In  Cutting 
vs.  Goddard,  decided  in  1901,  the  Supreme  Court  held  that  a  return  of 
10.9  per  cent  on  the  investment  is  not  unreasonably  high  and  that  a 
return  of  5.3  per  cent  is  unreasonably  low.^  In  decreeing  the  dissolu- 
tion of  the  Standard  Oil  and  the  American  Tobacco  Companies,  the 
same  tribunal  left  the  defendant  companies  in  possession  of  everything 
which  they  had  succeeded  in  amassing  by  unlawful  methods.  No- 
where in  either  of  these  decisions  is  there  any  hint  that  restitution 
ought  to  be  made.  On  the  contrary,  every  precaution  necessary  to 
.  conserve  the  propert}'  which  monopoly  control  had  garnered  together 
was  scrupulously  observed.  In  the  course  of  the  Standard  Oil  decision, 
the  Chief- Justice  remarked  "that  one  of  the  fundamental  purposes 
of  the  statute  (the  Anti-trust  Act)  is  to  protect,  not  to  destroy,  rights 
of  property."  ^  No  penalty  was  inflicted  other  than  dissolution  and 
the  prohibition  of  acts  violative  of  the  statute.  So  far  as  constitu- 
tional guaranties  are  concerned,  the  most  strenuous  advocate  of  prop- 
erty rights,  could  scarcely  ask  for  anything  more. 


Nevertheless,  the  extent  to  which  the  Supreme  Court  conserves  the 
rights  of  property  is  easily  exaggerated.  The  Dred  Scott  decision  did 
not  prevent  the  overthrow  of  slavery,  and  moreover  without  compen- 
sation. On  the  contrary,  it  hastened  its  downfall  and  proved  to  be  the 
one  thing  from  which  the  slave  power  might  well  have  prayed  to  be 
delivered.  Much  comfort  was  extracted  by  an  influential  portion  of 
the  property-owning  class  from  the  income  tax  decision  in  1895,  but  the 
cost  of  w^hat  was  gained  from  that  decision  has  seldom  figured  properly 
in  the  account.  Probably  no  decision  of  the  Supreme  Court  since  the 
Civil  War  has  excited  so  much  dissatisfaction  or  fallen  so  flat.  In  the 
opinion  of  many  the  court  as  now  constituted  would  find  a  way  of 
upholding  a  similar  measure  even  though  the  constitution  had  not  been 
amended.  To  save  the  face  of  the  court  was  the  strongest  argument 
for  proposing  the  income-tax  amenchnent.     But  the  decision  of  1895 

'  Ripley,  William  Z.,  Railway  Problems,  p.  578. 

'  United  Stales  Supreme  Court  Reports,  Vol.  LV,  Law.  Ed.,  October,  igio,  p.  652. 


74     THE   RESPONSE   OF  LEGISLATURES   AND   COURTS 

fanned  the  fires  of  social  discontent.  It  unmasked  the  motives  of 
those  opposed  to  an  income  tax.  On  the  one  hand,  are  those  well 
able  to  bear  the  burden  of  taxation  upon  whom  a  properly  administered 
income  tax  would  to  a  considerable  extent  rest.  On  the  other  hand, 
are  the  beneficiaries  of  protection  who  fear  that  an  income  tax  will 
deprive  them  of  one  pretext  for  the  maintenance  of  the  tariff.  The 
glaring  injustice  of  any  income  tax  apportioned  among  the  several 
states  according  to  population,  in  conformity  with  the  court's  decision, 
made  such  a  tax  impracticable.  One  effect  was  to  discredit  the  court 
itself.  Another  fact  had  a  similar  effect.  In  its  first  decision,  the 
court  divided  evenly  on  certain  of  the  points  at  issue.  After  reargu- 
ment  it  stood  five  to  four  against  the  act  on  these  points.  Far  from 
conserving  the  social  order,  the  income-tax  decision  did  quite  the  re- 
verse. 

Professor  Daniels  says : 

The  decision  or,  more  strictly,  the  decisions  of  the  Supreme  Court  which 
killed  the  Income  Tax  of  1894  made  a  great  deal  of  history,  and  unmade,  or 
at  all  events  remade,  a  good  deal  of  law.  It  certainly  traversed  legal  ex- 
pectation, it  jostled  the  doctrine  of  stare  decisis,  it  contravened  previous 
decisions,  and  it  discredited  a  good  many  dicta  which  had  already  become 
"blessed  words"  among  authoritative  text  writers  and  accredited  authorities 
on  constitutional  law.  .  .  .  The  deliverance  of  the  court  can  be  explained 
only  by  reference  to  what  has  been  happily  termed  "psychological  climate." 
.  .  .  The  Supreme  Court  had  reversed  its  own  decision  before,  but  except 
in  the  legal  tender  cases  no  modern  decision  had  been  reversed  which  bore 
very  directly  upon  the  stirring  political  issues  of  the  day.  But  the  court 
evidently  had  not  been  appealed  to  in  vain  upon  the  issue  that  the  tax  was 
a  stride  towards  socialism,  and  the  "weightier  matters  of  the  law"  seemed 
to  have  been  forgotten  under  the  shadowy  sense  of  dread  which  the  dim 
specter  of  socialism  invoked.  The  most  venerable  member  of  the  court 
gave  emphatic  utterance  to  the  feeling  which  moved  him.  "The  present 
assault  upon  capital,"  said  Mr.  Justice  Field,  "is  but  the  beginning.  It 
will  be  but  a  stepping-stone  to  other,  larger  and  more  sweeping,  till  our 
political  contests  will  become  a  war  of  the  poor  against  the  rich,  a  war 
constantly  growing  in  intensity  and  bitterness."  ^ 

Probably  the  Dartmouth  College  case  has  been  more  often  quoted 
than  any  other  as  indicative  of  the  jealous  care  with  which  the  Supreme 
Court  safeguards  property  rights.  But  few  decisions  illustrate  better 
the  relativity  of  judicial  decisions  to  the  circumstances  existing  at  the 
time  and  place.  When  the  decision  was  handed  down,  business  was 
still  conducted  on  a  very  modest  scale,  and  the  era  of  the  corporate 
form  of  business  organization  was  yet  to  come.  In  view  of  the  im- 
portant respects  in  which  the  doctrine  of  charter  rights  has  been 
modified  in  subsequent  cases,  it  is  probable  that  the  decision  handed 

1  Daniels,  Winthrop  More,  The  Elements  of  Public  Finance,  pp.  199,  200,  206. 


TO   THE   NEWER   DEMANDS  75 

down  in  181 9  would  have  been  different  if  the  industrial  changes  of  the 
next  fifty  years  had  been  foreseen.  Some  one  has  aptly  said  that  the 
Supreme  Court  follows  the  election  returns.  As  it  was,  it  appears 
that  Chief  Justice  Marshall  succeeded  in  bringing  a  majority  of  the 
court  to  his  point  of  view  only  by  means  of  methods  which  in  the  light 
of  to-day  are  so  high  handed  and  questionable  that  they  would  hardly 
be  tolerated  for  a  moment.^ 

The  potency  of  the  courts  to  protect  property  rights  depends  upon 
public  opinion.  Respect  for  the  law  is  not  always  at  a  maximum  in 
the  country  having  the  most  laws.  "It  is  not  the  existence  of  stat- 
utes," writes  President  Hadley,  "which  makes  murder  a  crime;  it  is 
the  growth  of  a  public  opinion  which  makes  the  individual  condemn 
himself  and  his  friends,  as  well  as  his  enemies,  for  indulgence  in  that 
propensity."  ,  The  chance  of  convicting  prominent  business  men  under 
the  criminal  section  of  the  anti-trust  act  until  recently  has  been  so  slim 
that  it  was  not  worth  while  to  bring  suit.  During  the  disorders  attend- 
ing the  strike  of  employees  on  railways  centering  at  Chicago  in  1894, 
public  feeling  ran  so  high  that  the  injunctions  issued  by  the  federal 
courts  were  not  vindicated  until  much  of  the  irreparable  injury  for- 
bidden by  the  courts  had  been  inflicted  upon  the  railways  and  those 
dependent  vipon  their  ser\-ices.  The  damages  which  the  railways 
have  since  recovered  by  suits  at  law  for  the  destruction  of  property 
are  but  a  tithe  of  the  losses  which  they  sustained,  to  say  nothing  about 
the  losses  inflicted  upon  the  public  at  large.  When  toll  pikes  in 
Kentucky  were  in  public  favor,  the  right  of  property  in  them  was 
secure.  When  they  came  to  be  regarded  as  a  "relic  of  barbarism,"  the 
courts  were  powerless  to  protect  them. 

Prior  to  the  Civil  War,  many  counties  in  Missouri  issued  bonds  to 
subsidize  the  building  of  railways.  The  bond  issues  were  loosely  safe- 
guarded, and  some  counties  in  which  no  railroad  was  built  were  addled 
with  a  heavy  debt.  The  people  in  these  counties  naturally  opposed 
paying  the  interest  and  the  principal  of  the  debt,  and  went  so  far  in 
some  instances  as  to  elect  judges  of  the  county  court  pledged  not  to 
make  the  necessary  tax  le\y.  The  bond-holders  accordingly  sought  a 
remedy  at  the  hands  of  the  federal  court  in  Kansas  City,  Missouri. 
But  in  a  number  of  counties  public  opinion  was  so  set  that  the  orders  of 
the  federal  court  directing  the  county  judges  to  levy  the  necessary  tax 
have  repeatedly  failed  to  command  obedience.  One  of  the  accepted 
and  well-understood  duties  of  the  judges  in  some  counties  has  been 
a  jail  sentence  for  contempt  of  court.  In  some  cases  the  judges  have 
taken  to  the  woods  as  soon  as  elected.  The  Supreme  Court  has  held 
that  a  federal  judge  can  not  himself  or  through  any  official  appointed 
by  him  make  a  tax  levy.     The  utmost  that  can  be  done  is  to  order  a 

>  Orton,  Jesse  F.,  Confusion  of  Property  with  Privilege;   Dartmouth  College  Case,  The 

Independent,  Vol.  LXVII,  igog,  pp.  3g2-3g7. 


76     THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

county  official  to  levy  the  tax  needed  to  pay  a  judgment,  and  to  punish 
failure  to  comply  as  contempt  of  court. ^  The  upshot  is  that  the  de- 
crees of  the  federal  court  have  for  years  been  in  abeyance  and  the  legal 
rights  of  the  bond-holders  have  not  been  enforced.  This  incident 
renders  it  more  than  doubtful  whether  the  federal  courts  could  have 
prevented  a  number  of  states  from  repudiating  their  debts  even  if 
the  eleventh  amendment  had  never  been  added  to  the  constitution. 
In  the  words  of  Lincoln : 

In  this  and  like  communities,  public  sentiment  is  everything.  With 
public  sentiment,  nothing  can  fail ;  without  it  nothing  can  succeed.  Con- 
sequently he  who  molds  public  sentiment  goes  deeper  than  he  who  enacts 
statutes  or  pronounces  decisions.  He  makes  statutes  and  decisions  possible 
or  impossible  to  be  executed.^ 

If  the  status  of  public  opinion  sometimes  paralyzes  the  activity  of 
prosecuting  attorneys  and  nullifies  the  decrees  of  courts,  it  also  occa- 
sionally enforces  a  higher  standard  of  business  conduct  than  the  law 
requires.  Numberless  oral  agreements  are  every  day  faithfully  ob- 
served which  can  not  be  enforced  at  law.  Many  a  man's  word  is  as 
good  as  his  bond.  Every  social  group  has  a  code  of  honor  which  in 
some  respects  exceeds  the  letter  of  the  law.  Probably  "Wall  Street " 
suggests  a  low  order  of  cunning  to  most  minds,  and  yet  there  is  no  place 
where  certain  kinds  of  contracts  are  more  scrupulously  observed. 
The  whole  fabric  of  credit  so  essential  to  modern  business  rests  upon 
men  keeping  faith,  and  is  in  the  main  quite  independent  of  the  com- 
pulsory processes  of  the  courts.  Justice  secured  by  means  of  litigation 
is  frequently  so  expensive  that  it  comes  too  high.  Throughout  the 
silver  controversy  the  members  of  the  New  York  Clearing  House 
steadfastly  refrained  from  paying  their  daily  balances  in  silver,  though 
Congress  required  the  Clearing  House  rule  forbidding  such  payments 
to  be  rescinded.^  During  the  Civil  W^ar,  Massachusetts  paid  the 
interest  on  her  bonds  in  gold,  "though  it  cost  her  sometimes  nearly 
three  for  one  to  keep  her  faith."  *  More  noteworthy  was  the  main- 
tenance of  the  gold  standard  on  the  Pacific  Slope.  Legally  debtors 
in  California  had  as  much  right  to  tender  greenbacks  in  full  discharge 
of  their  debts  as  in  any  other  part  of  the  country,  but  the  fact  that  a 
man  could  not  tender  greenbacks  without  injuring  his  credit  and  losing 
standing  among  business  men  effectually  prevented  such  conduct. 
Self-interest  resulted  in  a  higher  standard  of  business  honor  than  the 
law  demanded.  In  like  manner  competition  at  the  present  time  fre- 
quently compels  a  higher  standard  of  efficiency  and  honor  among 
men  than  the  law  requires. 

1 1  am  indebted  to  the  Dean  of  the  University  of  Missouri  for  this  information. 

'^  Debates  of  Lincoln  and  Douglas,  Edition  of  Follet,  Foster  &  Co.,  Columbus,  Ohio,  p.  82. 

2  White,  Horace,  Money  and  Banking,  fourth  edition,  p.  171. 

^Lowell,  James  Russell,  Prose  Works,  Essay  on  Democracy,  Vol.  VI,  p.  11. 


TO  THE  NEWER  DEMANDS  77 

It  is  difficult  to  see  why  any  one  with  any  practical  experience  of  busi- 
ness should  take  the  law  of  the  matter  as  a  guide.  The  law  is  a  very  cum- 
brous, slow  and  inefficient  machine  for  preventing  robbery  and  other  crimes 
on  the  part  of  rogues  and  burglars  in  the  various  forms  in  which  they  infest 
society.  It  makes  no  attempt  to  show  how  things  should  be  done  well. 
That  is  not  its  business.  Any  one  who  relies  on  the  merely  legal  inter- 
pretation of  his  duties  is  only  doing  enough  to  keep  him  out  of  Wormwood 
Scrubs.^ 

Once  more,  when  boast  is  made  of  the  protection  afforded  private 
property  by  the  courts,  an  important  exception  should  be  noted, 
namely,  promissory  notes.  Congress  has  the  right  at  any  time  to  emit' 
bills  of  credit  and  to  declare  them  a  legal  tender  in  payment  of  pre- 
existing debts.  The  man  who  lends  another  one  thousand  dollars 
to-day  is  without  any  remedy  at  law  if  his  debtor  at  the  maturity  of 
the  loan  tenders  him  depreciated  paper  money  which  Congress  has 
clothed  with  legal  tender  power.  In  other,  words,  a  large  class  of 
property  is  in  an  important  respect  well  outside  the  protection  of  the 
courts.  The  only  remedy  open  to  those  opposed  to  debasing  our 
monetary  standard  is  political  action.  It  was  this  remedy  and  this 
remedy  alone  that  brought  about  the  resumption  of  specie  payments 
and  subsequently  prevented  the  free  coinage  of  silver.  Even  if  the 
final  decision  of  the  Supreme  Court  in  the  legal-tender  cases  had  been 
adverse  to  the  power  of  Congress  to  issue  the  greenback,  a  large  portion 
of  the  community,  including  the  great  army  of  wage  earners,  would 
have  suffered  an  irreparable  loss  before  the  decision  was  reached. 

The  property-owning  interests  dependent  upon  a  protective  tariff 
for  their  prosperity  are  in  a  position  similar  to  the  holders  of  promissory 
notes.  The  tariff  schedules  fixed  by  any  Congress  may  be  changed  at 
any  time  without  the  slightest  obligation  to  compensate  those  w^hose 
business  interests  are  thereby  disturbed.  The  courts  can  not  be  suc- 
cessfully invoked  to  stay  the  hands  of  Congress.  Here  as  in  the  case  of 
promissory  notes  the  parties  interested  are  limited  to  political  action, 
and  if  the  history  of  tariff  legislation  indicates  anything  it  is  that  the 
remedy  is  more  than  adequate. 

The  case  of  the  lic^uor  traffic,  a  business  in  respect  to  which  the  police 
power  of  the  state  is  subject  to  a  minimum  of  restraint  by  the  courts, 
illustrates  the  same  point.  The  state  may,  if  it  deems  wise,  prohibit 
the  manufacture  and  sale  of  intoxicating  beverages  without  indemnify- 
ing any  one  for  losses  sustained.  The  liquor  business  is  commonly 
regarded  as  disreputable.  When  run  for  profit,  it  is  inconsistent  with 
the  public  good  and  it  is  accordingly  subjected  to  all  sorts  of  restrictions. 
It  is  notorious  that  the  business  in  many  communities  is  conducted 
in  flagrant  disregard  of  law.  Comparati\'ely  few  states,  however, 
go  so  far  as  to  try  to  prohibit  the  traffic.     In  most  communities 

'  Withers,  Stocks  and  Shares,  p.  145. 


78     THE   RESPONSE   OF  LEGISLATURES   AND   COURTS 

the  business  flourishes  and  there  is  no  lack  of  capital  willing  to 
assume  the  risks  incidental  to  embarking  in  it.  As  in  the  case  of  pro- 
tection, the  political  remedy  is  usually  more  than  ample  to  safeguard 
the  liquor  interests. 

II 

The  framers  of  the  constitution  were  fearful  of  democracy  and  enter- 
tained serious  misgivings  concerning  the  essential  goodness  of  man. 
In  theology,  many  of  them  accepted  the  doctrine  of  original  sin,  total 
depravity,  infant  damnation  and  the  final  perseverance  of  the  saints. 
In  politics,  they  distrusted  the  masses,  favored  a  restricted  suffrage, 
provided  an  electoral  college  for  the  choice  of  president,  left  the  elec- 
tion of  United  States  senators  to  the  legislatures  of  the  several  states, 
contrived  the  system  of  checks  and  balances  and  established  an  ap- 
pointive judiciary  with  power  to  set  aside  an  act  of  Congress.  The 
constitution  was  the  work  of  the  "solid,  conservative,  commercial  and 
financial  interests  of  the  country"  who  feared  legislative  tyranny  and 
whose  solicitude  never  lost  sight  of  the  safety  of  property.  For  a  long 
time,  however,  the  guaranties  of  property  in  the  constitution  were 
never  seriously  put  to  the  test.  The  one  noteworthy  exception  was 
property  in  slaves  which  the  constitution  failed  to  protect.  Until 
recently  the  ownership  of  property  was  widely  diffused,  and  because 
of  the  abundance  of  fertile  land  the  man  without  property  to-day 
stood  an  excellent  chance  of  becoming  an  owner  to-morrow.  There 
was  no  wage-earning  class  destined  to  remain  such  to  the  end  of  its  life. 
For  a  time  the  scarcity  of  men  willing  to  work  for  hire  handicapped  the 
development  of  manufactures.  It  has  not  been  the  distinctive  features 
of  our  form  of  government  so  much  as  our  environment  that  has  given 
us  peace  with  plenty. 

It  does  not  follow  consequently  that  our  governmental  and  economic 
systems,  under  the  conditions  which  obtain  to-day,  are  proof  against 
socialism.  The  institution  of  private  property  depends  upon  the  gen- 
eral consensus  of  opinion  which  varies  from  age  to  age.  It  is  a  common 
error  to  suppose  that  whatever  is  always  will  be.  Take  the  right  of  a 
man  to  interfere  with  the  business  of  another  by  normal  competition, 
by  way  of  illustration.  This  is  regarded  as  a  matter  of  course  to- 
day, but  there  was  a  time  when  the  right  to  engage  in  a  given  trade 
was  restricted  to  the  members  of  a  certain  guild,  and  a  man  was  not  at 
liberty  to  enter  any  pursuit  he  might  elect.  The  individual's  position 
in  the  social  order  was  determined  by  the  status  into  which  he  happened 
to  be  born  and  not  by  competition.  Accordingly,  the  courts  in  place 
of  upholding  the  right  of  competition  as  at  present  were  once  inclined 
to  look  upon  it  with  disfavor.^     Likewise,  property  rights  are  no  more 

1  Wyman,  Control  of  the  Market,  pp.  11-12. 


TO   THE   NEWER   DEMANDS  79 

absolute  than  is  the  right  of  competition.  Slave  property,  once  nation- 
wide, became  sectional  and  then  disappeared  altogether.  Property 
in  general  depends  as  much  upon  considerations  of  social  utility  as 
property  in  slaves.  For  a  long  time  it  was  restricted  to  movables. 
At  first  it  included  only  weapons  and  ornaments.  Gradually  it  came 
to  include  domestic  animals.  The  ownership  of  land  was  vested  in 
the  community  and  not  in  priA-ate  hands  until  comparatively  recent 
times.  The  powers  and  franchises  granted  cor|3orations  are  wholly 
optional  with  the  se\'eral  states,  and  depend  upon  considerations  of 
social  expediency.  But  for  the  social  will  embodied  in  positive  law, 
there  would  be  no  such  thing  as  theft. 

At  the  present  time  property  rights  are  being  modified  in  various 
directions.  There  is  a  strong  tendency  to  municipalize  or  nationalize 
certain  industries.  In  Ireland,  the  property  rights  of  the  large  land- 
owners have  been  abridged  by  Parliament.  Railways  and  other  labor 
organizations  that  occupy  a  strategic  position  are  altering  the  distribu- 
tion of  the  social  income  and  are  establishing  a  sort  of  joint  proprietor- 
ship. This  is  the  effect  of  "full  crew  bills."  According  to  the  com- 
mittee of  railway  managers,  the  demands  of  the  railway  employees 
on  the  eastern  roads  at  the  present  time  for  an  advance  of  wages  are 
equivalent  to  putting  the  income  of  three  hundred  and  forty  millions 
at  five  per  cent,  ahead  of  the  first  mortgage  bonds  of  the  roads. ^  The 
modification  of  the  liability  of  employers  at  common  law,  the  enact- 
ment of  workingmen's  compensation  acts  and  more  ample  provision 
for  playgrounds,  art,  music  and  education  by  taxation  and  private 
benevolence  point  to  the  growth  of  collective  property.  The  social 
obligations  resting  upon  private  property  are  increasing.  The 
abridgment  of  property  rights  is  reflected  in  the  lighter  punishments 
provided  for  offenses  against  property.  Imprisonment  for  debt  has 
been  abolished.  The  branding  of  thieves  and  vagabonds  has  been  dis- 
carded. Capital  punishment  for  crimes  against  property  ho  longer 
exists.  Many  punishments  which  appear  cruel  and  unusual  in  the 
light  of  to-day  did  not  appear  so  at  all  to  our  forefathers.  As  humani- 
tarian considerations  have  gained  ground,  private  property  has  lost 
something  of  the  sanctity  in  which  it  was  once  held. 

It  is  remarkable  how  quickly  even  the  staunchest  defenders  of  prop- 
erty sometimes  face  about  and  demand  an  abridgment  of  property 
rights.  All  that  is  needed  is  some  event  that  brings  out  clearly  the 
opposition  between  private  and  public  interests.  A  strike  that  ties  up 
the  steam  roads  of  the  country,  or  the  street  railway  service  of  a  city, 
may  turn  out  to  be  such  an  event.  The  anthracite  coal  strike  un- 
doubtedly was.  No  one  would  probably  accuse  so  "  safe  and  sane  "  an 
organ  as  The  New  York  Tribune  of  socialistic  leanings,  and  yet  this 
paper  remarked : 

'  The  Commercial  and  Financial  Chronicle,  July  12,  1913,  p.  76. 


8o     THE   RESPONSE   OF  LEGISLATURES   AND   COURTS 

The  old  doctrine  that  a  man  may  do  what  he  will  with  his  own  worked 
well  enough  when  the  life  of  the  community  was  not  dependent  on  what  he 
did  own,  but  some  way  or  other  it  does  not  fit  the  case  when  a  whole  com- 
munity is  under  one  control.  It  did  not  seriously  matter  if  one  mine  was 
shut  down  and  its  product  cut  off.  The  community  could  allow  the  owner 
to  say  it  was  his,  and  his  use  of  it  did  not  concern  them.  But  when  all 
the  coal  mines  are  subject  to  one  will,  the  way  that  will  works  is  of  profound 
interest  to  those  dependent  on  it.  The  mines  are  at  law  unquestionably 
private  property.  Nobody  can  go  into  court  and  get  relief  because  the  mines 
do  not  produce  the  coal  he  needs.  But  there  is  a  moral  trust  —  even  kings 
now  admit  that,  even  though  they  rule  by  divine  right,  they  hold  a  trust  for 
their  people.  Prerogative  and  title  are  with  the  operators,  but  the  people 
must  have  coal,  and  if  the  operators  forget  the  moral  obligations  attached 
to  their  property-holding  they  will  force  the  substitution  of  legal  for  moral 
obligation  in  some  form  or  other. ^ 

If  the  public  mind  veers  strongly  toward  socialism,  there  are  at  least 
three  ways  by  which  it  may  attain  its  goal.  First,  private  property 
can  be  more  heavily  taxed  and  more  heavily  subjected  to  the  police 
pow' er  of  the  state.  All  of  the  machinery  required  for  these  purposes 
already  exists.  No  constitutional  change  is  necessary.  Pri\'ate 
property  is  held  subject  to  the  right  of  the  state  to  tax.  In  addition, 
in  such  cities  as  New  York,  the  building  department  supervises  all 
structural  changes  or  defects  in  buildings ;  the  tenement-house  depart- 
ment regulates  the  number  of  windows  required  for  light  and  air  and 
all  alterations  in  houses  occupied  by  more  than  three  families,  and  if  its 
orders  are  not  complied  with  this  department  has  power  to  vacate 
property  and  lock  it  up ;  the  fire-department  prevention  bureau  has 
charge  of  such  matters  as  fire  escapes ;  the  board  of  health  sees  that 
certain  sanitary  requirements  are  complied  with ;  the  highway  de- 
partment requires  abutting  owners  to  keep  their  sidewalks  in  repair ; 
the  state  factory  inspectors  have  supervision  of  establishments  where 
one  or  more  men  are  employed,  and  the  street-cleaning  department 
looks  after  such  things  as  garbage  receptacles.  An  increase  in  the 
scrutiny  of  the  public  eye  in  each  of  these  directions  is  easily  concei\-- 
able.  There  is  no  hard  and  fast  line  between  "taxation,  reasonable 
regulation  and  fair  pa}^Tnent,"  on  the  one  hand  and  confiscation,  on 
the  other.     The  difference  is  a  matter  of  degree  and  of  opinion. 

Secondly,  a  much  more  important  gateway  to  socialism  stands  wide 
open,  namely,  the  regulation  of  bequest  and  inheritance,  neither  of 
which  is  a  property  right  under  the  federal  and  state  constitutions.  So 
long  as  public  opinion  favors  private  property,  law^s  governing  bequest 
and  inheritance  similar  to  those  which  exist  at  present  will  be  continued 
in  force.  But  if  public  opinion  ever  turns  in  disgust  from  the  existing 
economic  system,  convinced  of  the  practicability  as  well  as  of  the 

'Quoted  by  The  Outlook,  August  30,  1902,  p.  1035. 


TO  THE   NEWER  DEMANDS  8i 

desirability  of  socialism,  a  change  in  the  laws  governing  the  descent 
of  property  will  be  one  of  the  easiest  methods  of  approach. 

In  the  third  place,  the  position  of  the  federal  courts  is  not  impreg- 
nable. Save  only  the  Supreme  Court,  Congress  has  power  to  abolish 
them.  This  was  actually  done  in  iSoi  in  the  case  of  the  "midnight 
judges."  More  recently  the  existence  of  the  Commerce  Court  has 
been  threatened.  There  is  no  way,  moreover,  of  compelling  a  recal- 
citrant Congress  to  make  appropriations  for  the  federal  courts,  and  if 
so  disposed  the  President  by  failing  to  appoint  or  the  Senate  to  confirm 
could  permit  even  the  Supreme  Court  to  die  a  peaceful  death.  Jeffer- 
son, Jackson  and  Lincoln  showed  that  a  Supreme  Court  decision  is  not 
binding  on  a  coordinate  department  of  the  government.  The  consti- 
tution expressly  makes  the  appellate  jurisdiction  of  the  Supreme 
Court  subject  to  such  exceptions  and  regulations  as  Congress  shall 
make.  On  one  occasion  Congress  limited  the  appellate  jurisdiction 
of  the  court  with  a  view  to  preventing  it  from  declaring  an  act  of  Con- 
gress unconstitutional.  This  action  was  upheld  by  the  court  itself.^ 
It  is  well  known  also  that  Congress  can  pack  the  court  by  increasing 
its  membership.  Professor  Goodnow  aptly  remarks  "that  almost  all 
of  the  great  powers  which  the  federal  courts  possess  are  theirs  only 
because  of  the  fact  that  their  exercise  of  these  powers  has  as  a  whole 
been  satisfactory  to  the  people  of  the  United  States."  ^ 

III 

The  main  reliance  of  property  owners  does  not  lie  in  constitutions 
and  courts,  but  in  not  violating  the  sense  of  fair  play.  The  desire  for 
property  is  well-nigh  universal,  and,  so  long  as  a  fair  and  open  field  is 
maintained,  the  sense  of  injustice  will  have  little  chance  to  take  root, 
and  the  army  of  property  owners,  both  actual  and  potential,  together 
with  their  natural  allies  among  those  without  property,  will  be  too 
numerous  to  be  dispossessed.  The  danger  to  property  does  not  lie 
so  much  in  the  minds  of  wily  agitators,  in  the  ignorance  or  dejiravity 
of  the  common  man,  or  in  the  en\y  which  the  poor  bear  toward  the 
rich  as  in  closing  the  door  of  opportunity  to  the  struggling  and  aspiring 
masses.  So  long  as  a  man  could  homestead  a  piece  of  land,  there  was 
no  social  problem  such  as  exists  to-day.  No  self-respecting  class  whose 
necessities  condemn  it  to  a  life  of  barely  requited  toil  can  be  expected 
to  rest  content  without  at  least  the  hope  of  something  better.  There 
is  no  better  way  to  safeguard  property  than  to  give  every  man  a  fair 
start  and  an  even  chance  in  life.  No  class  can  so  ill  afford  to  disregard 
the  forms  of  law  as  the  owners  of  property.  To  throw  labor  agitators 
into  jail  or  to  railroad  them  to  the  penitentiary  on  trumped  up  charges, 

*  Goodnow,  Social  Reform  and  the  Constitution,  p.  345. 

*  Ibid.  pp.  3  ^3-3,VV- 


82     THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

to  seize  their  persons  and  deport  them  from  the  community  by  an 
unlawful  exercise  of  force,  or  to  interfere  unwarrantably  in  any  way 
with  their  freedom  of  speech,  is  undisguised  anarchy.  Those  property 
owners  who  make  undue  exactions,  who  entrench  themselves  in  posi- 
tions of  privilege,  who  use  the  state  for  their  own  aggrandizement  and 
for  the  exploitation  of  the  weak,  or  who  stand  out  against  much  needed 
reforms,  are  among  the  worst  enemies  of  their  class.  .  .  . 


Changes  in  our  fundamental  law  can  not  be  indefinitely  postponed 
by  a  difificult  mode  of  amendment.  In  the  long  run  the  effect  is  to 
irritate  the  public  mind  and  to  accentuate  such  changes.  Until  the 
constitution  of  Ohio  was  overhauled  in  191 2,  no  amendment  could  be 
added  unless  it  received  a  majority  of  all  the  votes  cast  at  an  election. 
Every  vote  that  was  not  cast  for  an  amendment  counted  against  it. 
Hence,  it  was  next  to  impossible  to  amend  the  constitution.  It  is  true 
that  several  amendments  were  added  during  the  early  part  of  the  last 
decade.  The  veto  power  was  given  the  governor,  and  the  double 
liability  of  stockholders  in  certain  domestic  corporations  was  with- 
drawn. But  this  was  done  by  the  Republican  and  Democratic  parties 
indorsing  the  amendments  and  placing  the  word  "Yes"  opposite  them 
on  the  state  tickets.  As  a  result  of  this  strategy,  large  numbers  of 
uninformed  and  indifferent  voters  voted  for  the  amendments.  It  was 
only  on  very  rare  occasions,  however,  that  the  cooperation  of  the 
machines  of  both  parties  could  be  secured  in  this  way.  The  pressure 
for  constitutional  tinkering,  therefore,  increased  until  sweeping  changes 
were  made  when  the  opportunity  offered. 

On  240  out  of  the  472  constitutional  questions  submitted  to  the 
voters  of  the  several  states  in  the  decade  ending  with  1908,  the  vote  was 
less  than  fifty  per  cent,  of  the  vote  for  candidates.  In  1910  the  vote  in 
Oregon  rose  to  seventy  or  more  per  cent,  in  but  14  out  of  23  cases. ^ 
The  heavy  handicap  of  requiring  a  majority  of  the  total  vote  cast  at 
an  election  to  adopt  an  amendment  is,  therefore,  apparent.  As  a  result 
of  this  requirement,  not  a  single  amendment  was  added  to  the  con- 
stitution of  Oregon  in  the  forty-three  years  ending  with  1900.^  It  is 
possible  that  both  California  and  Oregon  have  more  recently  gone  to 
the  other  extreme  and  have  made  it  too  easy  to  amend  their  constitu- 
tions, but  a  mode  of  amendment  that  is  practically  prohibitory  is 
beyond  doubt  unsound.  Political  machinery  that  compels  delibera- 
tion and  prevents  hasty  and  precipitate  action  is  of  the  utmost  im- 
portance to  the  success  of  democracy.  The  formation  of  public 
opinion  on  any  question  requires  time  for  discussion.  The  disposition 
to  weigh  evidence  needs  encouragement.     Every  precaution  necessary 

1  Oberholtzer,  Ellis  Paxson,  The  Referendum,  Initiative  and  Recall  in  America,  p.  506. 
*  Haynes,  George  H.,  Political  Science  Quarterly,  March,  1913. 


TO   THE   NEWER   DEMANDS  83 

to  both  sides  of  a  question  having  a  hearing  should  be  taken.  "Tried 
expedients,"  "verified  conclusions,"  "traditional  beliefs"  should  not 
be  abandoned  without  mature  deliberation.  But  when  the  checks 
upon  the  popular  will  exceed  what  is  necessary  to  these  ends,  they  not 
only  cease  to  serve  a  useful  purpose,  but  become  obstructive.  Dis- 
cussion which  is  stopped  at  the  outset  from  changing  social  conditions 
is  useless.  When  the  door  to  orderly  change  is  closed,  the  only  re- 
maining alternative  is  revolution. 

If  the  federal  constitution  were  less  rigid,  both  life  and  property 
would  probably  be  more  secure.  A  more  flexible  instrument  would 
not  hold  things  in  a  vise-like  grip,  but  would  permit  changes  in  govern- 
mental policy  with  less  social  tension.  The  constitution  as  it  stands 
leads  the  courts  to  make  forced  interpretations,  makes  for  obstructive 
delay  in  the  righting  of  grievances,  and  pens  up  the  ferment  of  society 
until  it  sometimes  threatens  the  social  order.  It  has  discouraged  the 
existence  of  a  party  committed  to  any  cause  that  requires  a  constitu- 
tional amendment.  It  has  helped  to  make  our  political  contests 
largely  scrambles  for  offices.  So  far  as  principles  are  concerned,  the 
difference  between  our  leading  parties  has  usually  been  so  slight  that 
it  has  been  very  difficult  to  distinguish  between  them.  In  such  a 
humanitarian  and  democratic  age  as  the  present,  a  constitution  that  is 
"based  upon  the  concept  that  the  fundamental  private  rights  of 
property  are  anterior  to  government  and  morally  beyond  the  reach  of 
popular  majorities,"  ^  and  that  is  at  the  same  time  so  difficult  to  amend 
is  out  of  keeping  with  the  times.  So  scholarly  a  man  and  conserva- 
tive a  thinker  as  Professor  Monroe  Smith  maintains  that 

•  In  Kentucky,  not  more  than  two  amendments  can  be  submitted  at  a 
time ;  in  Arkansas,  Kansas  and  Montana,  not  more  than  three  at  a  lime. 
In  New  Jersey  and  Pennsylvania,  no  amendment  or  amendments  can  be 
submitted  oftener  than  once  in  live  years ;  in  Tennessee,  not  oftener  than 
once  in  six  years,  and  in  Vermont,  not  oftener  than  once  in  ten  years.  A 
number  of  states  require  a  majority  of  those  voting  at  an  election  for  the 
adoption  of  an  amendment.  In  these  states,  a  majority  of  those  voting 
for  and  against  an  amendment  does  not  necessarily  suffice.'  No  less  than 
forty  amendments  that  have  been  added  to  the  constitution  of  ^Michigan 
would  have  failed  to  carry  if  this  requirement  had  been  in  force.^  In  Wyo- 
ming, a  majority  of  the  qualified  electors,  whether  voting  or  not  is  required. 
In  Pennsylvania,  an  "amendment  must  be  passed  by  two  successive  legis- 
latures before  it  can  be  voted  on  by  the  people,  and  the  legislature  meets 
only  on  alternate  years."''  The  amendment  of  the  constitution  of  Illinois  is 
especially  difficult.     A  two-thirds  vote  of  each  house  is  necessary  to  propose 

'  Beard,  Charles  A.,  An  Economic  Interpretation  of  the  Constitution  of  the  United 
States,  p.  324. 

2  Thorpe,  Francis  Newton,  The  Federal  and  State  Constitutions  of  the  United  States. 

^  Fairlie,  John  A.,  The  Referendum  and  Initiative  in  Michigan,  p.  140. 

■•  Lewis,  William  Draper,  "  A  New  Method  of  Constitutional  Amendment  bj'  Popular 
Vote,"  Annals  of  the  Americiin  Academy  0/  Political  and  Social  Science,  p.  322. 


84     THE   RESPONSE  OF  LEGISLATURES  AND   COURTS 

an  amendment.  Not  more  than  one  article  at  a  time  can  be  amended, 
and  the  same  article  not  oftener  than  once  in  four  years.  Finally,  a  ma- 
jority of  those  voting  at  an  election  is  required  to  adopt  an  amendment.^ 
As  a  result,  many  reforms  that  depend  upon  amending  the  constitution  are 
practically  at  a  standstill.  The  advocates  of  different  amendments  block 
each  other.  The  friends  of  the  initiative  and  the  referendum  prevent  the 
reform  of  the  general  property  tax  and  vice  versa.  Each  demands  the  right 
of  way.  In  the  meantime,  the  reorganization  of  the  judiciary,  the  short 
ballot,  the  abolition  of  minority  representation  in  the  legislature  and  home 
rule  for  cities  are  obliged  to  wait.^  One  is  reminded  of  the  celebrated  Le- 
compton  constitution  whch  was  nearly  foisted  upon  the  people  of  Kansas. 
In  providing  for  its  own  amendment,  it  declared:  "But  no  alteration  shall 
be  made  to  affect  the  right  of  property  in  the  ownership  of  slaves."' 

One  might  suppose  that  the  constitution  of  New  York  is  particularly 
difificult  to  amend,  judging  from  the  amount  of  criticism  which  the  highest 
court  of  the  state  has  excited  in  recent  years.  This,  however,  is  not  the 
case.  The  constitution  has  been  amended  on  numerous  occasions  since  its 
adoption  in  1894.  New  York  is  sliffering  from  the  archaic  condition  of  its 
judicial  mind  rather  than  from  the  rigidity  of  its  constitution.  Professor 
Walter  F.  Willcox  has  noted  that  the  court  of  appeals,  in  holding  the  Work- 
men's Compensation  Act  unconstitutional,  substituted  its  own  assumptions 
for  the  facts.  In  the  face  of  statistical  evidence  to  the  contrary,  the  court 
held  that  the  statute  "does  nothing  to  conserve  the  health,  safety  or  morals 
of  the  employees."  *  Such  an  attitude  of  mind  is  unscientific  and  until  it 
is  corrected  no  mode  of  amending  the  constitution,  however  facile,  can  pre- 
vent salutary  measures  from  being  held  up  for  a  time  by  the  courts.  "A 
master  of  legal  history  tells  us  that  taught  law  is  tough  law.  Certainly  it 
is  true  that  our  legal  thinking  and  legal  teaching  are  to  be  blamed  more 
than  the  courts  for  the  want  of  sympathy  with  social  legislation  which  has 
been  so  much  in  evidence  in  the  immediate  past.  One  might  almost  say 
that  instead  of  recall  of  judges,  recall  of  law  teachers  would  be  a  useful 
institution.  At  any  rate,  what  we  must  insist  upon  is  recall  of  much  of  the 
juristic  and  judicial  thinking  of  the  last  century."  ^ 

LAW  IN   BOOKS   AND   LAW  IN  ACTION 

By  Roscoe  Pound,  of  the  Harvard  Law  School 

(From  the  American  Law  Review,  January-February,  1910,  Yol.  XLI\",  pp. 

12-36) 

When  Tom  Sawyer  and  Huck  Finn  had  determined  to  rescue  Jim 
by  digging  under  the  cabin  where  he  was  confined,  it  seemed  to  the 
uninformed  lay  mind  of  Huck  Finn  that  some  old  picks  the  boys  had 

1  Thorpe,  Francis  Newton,  op.  cit. 

*  See  an  interesting  series  of  newspaper  articles  by  Arthur  M.  Evans,  in  The  Chicago 
Record-Herald  during  November  and  December,  1913. 

'Debates  of  Lincoln  and  Douglas,  op.  cit.  p.  109. 

*  The  .American  Journal  of  Sociology,  Vol.  XV^III,  1913,  pp.  606-612. 

5  Professor  Roscoe  Pound,  T'he  American  Journal  of  Sociology,  Vol.  XVIII,  1912,  p.  339. 


TO  THE   NEWER  DEMANDS  85 

found  were  the  proper  implements  to  use.  But  Tom  knew  better. 
From  reading  he  knew  what  was  the  right  course  in  such  cases,  and  he 
called  for  case-knives.  "It  don't  make  no  difference,"  said  Tom, 
"how  foolish  it  is,  it's  the  right  way  —  and  it's  the  regular  way.  And 
there  ain't  no  other  way  that  ever  I  heard  of,  and  I've  read  all  the 
books  that  gives  any  information  about  these  things.  They  always 
dig  out  with  a  case-knife."  So,  in  deference  to  the  books  and  the 
proprieties,  the  boys  set  to  work  with  case-knives.  But  after  they  had 
dug  till  nearly  midnight  and  they  were  tired  and  their  hands  were 
blistered,  and  they  had  made  little  progress,  a  light  came  to  Tom's 
legal  mind.  He  dropped  his  knife  and,  turning  to  Huck,  said  firmly, 
"Gimme  a  case-knife."     Let  Huck  tell  the  rest: 

He  had  his  own  by  him,  but  I  handed  him  mine.  He  flung  it  down 
and  says,  "  Gimme  a  case-knife.'" 

I  didn't  know  just  what  to  do  —  but  then  I  thought.  I  scratched 
around  amongst  the  old  tools  and  got  a  pickax  and  give  it  to  him,  and  he 
took  it  and  went  to  work  and  never  said  a  word. 

He  was  always  just  that  particular.     Full  of  principle. 

Tom  had  made  over  again  one  of  the  earliest  discoveries  of  the  law. 
When  tradition  prescribed  case-knives  for  tasks  for  which  pick- 
axes were  better  adapted,  it  seemed  better  to  our  forefathers,  after  a 
little  vain  struggle  with  case-knives,  to  adhere  to  principle  —  but 
use  the  pickax.  They  granted  that  law  ought  not  to  change. 
Changes  in  law  were  full  of  danger.  But,  on  the  other  hand,  it  w-as 
highly  inconvenient  to  use  case-knives.  And  so  the  law  has  always 
managed  to  get  a  pickax  in  its  hands,  though  it  steadfastly  demanded 
a  case-knife,  and  to  wield  it  in  the  virtuous  belief  that  it  was  using  the 
approved  instrument. 

It  is  worth  while  to  recall  some  of  the  commonplaces  of  legal  history 
by  way  of  illustration.  One  of  the  first  difficulties  encountered  by 
archaic  legal  systems  founded  upon  the  family  and  postulating  for 
every  sort  of  legal,  social  and  religious  institution,  the  continuity  of 
the  household,  was  the  failure  of  issue,  the  want  of  the  son  to  per- 
petuate the  household  worship,  whom  religious  and  legal  dogmas  re- 
quired. No  one  thought  of  superseding  these  dogmas,  but  their  mani- 
fest inconvenience  and  injustice  were  avoided  by  the  device  of  adop- 
tion. Presently  a  better  way  of  disposing  of  property  after  death, 
without  infringing  upon  ancient  doctrines,  occurred  to  some  Roman. 
Why  not  sell  his  whole  household  and  estate  to  the  person  upon  whom 
he  desired  it  to  devolve  ?  But  if  he  so  sold  it,  and  the  purchaser  was 
an  honorable  man,  the  latter  would  carry  out  oral  instructions  at  the 
time  of  the  transfer  as  to  the  purpose  for  which  it  was  made  and  the 
disposition  to  be  made  of  the  property.  After  this  had  gone  on  till 
every  one  had  begun  to  employ  the  proceeding,  a  law^  of  the  Twelve 


86     THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

Tables  gave  legal  efficacy  to  the  oral  instructions,  when  the  form  of 
sale  was  had,  and  wills  had  come  into  being.  A  better  example  is  to 
be  seen  in  the  Roman  law  of  marriage.  The  religious  marriage,  which 
was  the  only  one  recognized  by  religion  and  hence  by  law,  was  not 
open  to  the  plebeian.  In  consequence  he  did  not  have  his  wife  in  manus 
or  his  children  in  potestas,  and  his  household  had  no  standing  before 
the  law.  The  law  was  not  altered.  It  was  not  enacted  that  there 
might  be  marriage  without  a  wife  in  manus  and  a  family  without 
children  in  potestas,  but  purchase  or  adverse  possession  and  the  statute 
of  limitations  were  resorted  to  in  order  to  bring  the  plebeian's  wife 
into  manus  in  another  way.  Our  own  law  furnishes  many  such  in- 
stances. When  the  Anglo-Saxon  king  desired  to  extend  the  pro- 
tection of  his  peace  to  some  one,  he  took  him  by  the  hand  publicly 
and  made  of  him,  for  legal  purposes,  a  minister  or  servant  entitled  to 
the  king's  peace  which  attached  to  members  of  his  household.  When 
wager  of  law  had  made  the  action  of  debt  a  worthless  remedy  upon 
simple  contracts,  wager  of  law  was  not  abolished,  but  the  courts  found 
a  trespass  and  a  breach  of  the  king's  peace  in  failure  to  perform  a 
promise,  if  only  something  had  been  given  presently  in  exchange  for 
it,  and  thus  imposed  upon  our  law  of  contracts  the  formality  of  a  con- 
sideration. When  the  delay  and  formalism  of  real  actions  and  the 
incident  of  trial  by  battle  made  them  inadequate  remedies,  a  fictitious 
lease  and  fictitious  ejectment  were  resorted  to  in  order  to  make  another 
remedy  meet  the  situation.  When  the  hard  and  fast  form  of  writ 
and  declaration  failed  to  provide  for  new  cases  of  conversion  of  a 
plaintiff's  property,  the  form  was  not  altered,  but  the  loss  and  finding 
were  assumed  from  the  conversion ;  so  that  we  are  able  to  read  in  an 
American  report  of  the  nineteenth  century  that  the  plaintiff  casually 
lost  one  hundred  freight  cars  and  the  defendant  casually  found  them 
and  converted  them  to  its  own  use,  as  if  it  were  a  watch  or  a  pocket 
book  that  had  been  lost. 

We  are  by  no  means  so  much  wiser  than  our  fathers  as  we  sometimes 
assume.  While  we  have  few  of  the  old  fictions  of  procedure  left,  we 
can  make  new  ones  of  our  own  upon  occasion  in  the  like  spirit.  The 
mode  of  reading  bills  to  some  of  our  state  legislatures  pursuant  to 
constitutional  requirements  is  in  every  way  worthy  to  go  down  in 
history  with  ac  etiam  and  quo  minus.  The  doctrine  of  the  presumed 
citizenship  of  stockholders  of  corporations,  and  hence  of  the  corpora- 
tions, for  purposes  of  suit  in  the  Federal  courts,  is  worthy  of  the  courts 
that  found  a  breach  of  the  king's  peace  in  fraud  and  deceit.  But  it  is 
not  of  fictions  of  themselves  that  I  would  speak.  They  soon  get  into 
the  books  and  become  part  of  the  law  as  it  is  written.  They  mark 
where  there  was  once  a  distinction  between  law  in  the  books  and  law 
in  action,  and  show  one  way  in  which  the  two  have  been  brought 
into  accord.     They  show  where  and  how  legal  theory  has  yielded  to 


TO  THE   NEWER   DEMANDS  87 

the  pressure  of  lay  ideas  and  lay  conduct.  The  current  divergencies 
are  not  yet  so  marked.  They  escape  notice.  The  fictions  that  are 
to  mark  them  for  future  generations  of  jurists  are  in  the  making 
But  if  we  look  closely,  distinctions  between  law  in  the  books  and  law 
in  action,  between  the  rules  that  purport  to  govern  the  relations  of 
man  and  those  that  in  fact  govern  them,  will  appear,  and  it  will  be 
found  that  to-day  also  the  distinction  between  legal  theory  and  judicial 
administration  is  often  a  very  real  and  very  deep  one. 

Let  us  take  a  few  examples.  It  is  a  settled  dogma  of  the  books 
that  all  doubts  are  to  be  resolved  in  favor  of  the  constitutionality  of  a 
statute  —  that  the  courts  will  not  declare  it  in  conflict  with  the  con- 
stitution unless  clearly  and  indubitably  driven  to  that  conclusion. 
But  it  can  not  be  maintained  that  such  is  the  actual  practice,  especially 
with  respect  to  social  legislation  claimed  to  be  in  conflict  with  con- 
stitutional guaranties  of  liberty  and  property.  The  mere  fact  that  the 
Court  of  Appeals  of  New  York  and  the  Supreme  Court  of  the  United 
States  differed  on  such  questions  as  the  power  to  regulate  hours  of 
labor  on  municipal  and  public  contracts,  and  the  power  to  regulate  the 
hours  of  labor  of  bakers,  the  former  holding  adversely  to  the  one  ^  and 
upholding  the  other,-  while  the  latter  court  had  already  ruled  the  oppo- 
site on  the  first  question  ^  and  then  reversed  the  ruling  of  the  New  York 
court  on  the  second,''  speaks  for  itself.  Many  more  instances  might 
be  noted.  But  it  is  enough  to  say  that  any  one  who  studies  critically 
the  course  of  decisions  upon  constitutional  questions  in  a  majority  of 
our  state  courts  in  recent  years  must  agree  with  Professor  Freund 
that  the  courts  in  practice  tend  to  overturn  all  legislation  which  they 
deem  unwise,^  and  must  admit  the  truth  of  Professor  Dodd's  state- 
ment : 

The  courts  have  now  definitely  invaded  the  field  of  public  policy  and 
are  quick  to  declare  unconstitutional  almost  any  laws  of  which  they  dis- 
approve, particularly  in  the  fields  of  social  and  industrial  legislation.  The 
statement  still  repeated  by  the  courts  that  law's  will  not  be  declared  uncon- 
stitutional unless  their  repugnance  to  the  constitution  is  clear  beyond  a 
reasonable  doubt,  seems  now  to  have  become  "  a  mere  courteous  and  smoothly 
transmitted  platitude."  ^ 

Departure  from  the  legal  theory  at  this  point  is  leading  to  another 
change.  The  doctrine  of  the  books  is  that  an  unconstitutional  statute 
is  simply  a  nullity.  There  never  was  such  a  statute.  No  legal  eft'ect 
whatever  has  been  produced.     But  when  in  five  years  the  courts  of 

'  People  vs.  Coler,  ii6  N.Y.  i. 

2  People  vs.  Lochner,  177  N.Y.  145. 

'  U.S.  vs.  Martin,  94  U.S.  400. 

<  Lochner  w.  N.Y.,  198  U.S.  45. 

^  Green  Bag,  XVII,  416. 

*  "The  Gi  nvlh  of  Judicial  Power,"  Political  Science  Quarterly,  XXIV,  pp.  193,  194 


88     THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

this  country  hold  three  hundred  and  seventy-seven  statutes,  or  an 
average  of  over  seventy-one  a  year,  unconstitutional,  it  is  obvious 
that  such  a  theory  becomes  highly  inconvenient.  It  is  a  natural 
consequence  that  a  practice  of  recognizing  what  might  be  called  "rfe 
Jado  statutes"  is  beginning  to  appear  in  one  guise  or  another. ^ 

Another  example  is  to  be  found  in  those  jurisdictions  where  the 
common-law  doctrines  as  to  employer's  liability  still  obtain  and  in 
those  corners  of  employer's  liability  in  other  jurisdictions  where 
recent  legislation  has  left  the  common  law  in  force.  It  is  notorious 
that  a  feeling  that  employers  and  great  industrial  enterprises  should 
bear  the  cost  of  the  human  wear  and  tear  incident  to  their  operations 
dictates  more  verdicts  in  cases  of  employer's  liability  than  the  rules  of 
law  laid  down  in  the  charges  of  the  courts.  Most  of  the  new  trials 
directed  by  our  highest  courts  of  review  because  the  verdicts  returned 
are  not  sustained  by  the  evidence  are  in  cases  of  this  sort.  Here  the 
law  in  the  books  is  settled  and  defined.  The  law  administered  is 
very  different,  and  only  the  charge  of  the  court,  rigidly  examined  on 
appeal,  serves  to  preserve  an  appearance  of  life  in  the  legal  theory. 

More  striking  still  is  the  divergence  between  legal  theory  and 
current  practice  in  the  handling  of  persons  suspected  of  crime.  The 
"third  degree"  has  become  an  everyday  feature  of  police  investiga- 
tion of  crime.  What  is  our  law  according  to  the  books?  "The 
prisoner,"  says  Sir  James  Stephen,  "is  absolutely  protected  against 
all  judicial  questioning  before  or  at  the  trial."  "This,"  he  adds, 
"contributes  greatly  to  the  dignity  and  apparent  humanity  of  a 
criminal  trial.  It  effectually  avoids  the  appearance  of  harshness, 
not  to  say  cruelty,  which  often  shocks  an  English  spectator  in  a  French 
court  of  justice."  ^  Such  is  the  legal  rule.  But  prosecuting  attorneys 
and  police  officers  and  police  detectives  do  not  hesitate  to  conduct 
the  most  searching,  rigid  and  often  brutal  examinations  of  accused 
or  suspected  persons,  with  all  the  appearance  of  legality  and  of  having 
the  power  of  the  state  behind  them.  It  is  true,  no  rich  man  is  ever 
subjected  to  this  process  to  obtain  proof  of  violation  of  anti-trust  or 
rebate  legislation  and  no  powerful  politician  is  thus  dealt  with  in 
order  to  obtain  proof  of  bribery  and  graft.  The  malefactor  of  means, 
the  rogue  who  has  an  organization  of  rogues  behind  him  to  provide  a 
lawyer  and  a  writ  of  habeas  corpus  has  the  benefit  of  the  law  in  the 
books.  But  the  ordinary  malefactor  is  bullied  and  even  sometimes 
starved  and  tortured  into  confession  by  officers  of  the  law.  It  is  no 
doubt  a  sound  instinct  that  makes  us  hesitate  to  give  any  such  exam- 
inations the  sanction  of  legality.  We  may  agree  with  Sir  James 
Stephen's  informant  that  there  is  a  deal  of  laziness  behind  it,  that,  to 
use  his  words,  "it  is  far  pleasanter  to  sit  comfortably  in  the  shade 

1  "The  Growth  of  Judicial  Power,"  Political  Science  Quarterly,  XXIV,  193,  194. 

2  History  of  the  Criminal  Law,  I,  441. 


TO  THE   NEWER   DEMANDS  89 

rubbing  red  pepper  into  a  poor  devil's  eyes  than  go  about  in  the  sun 
hunting  up  evidence."  ^  The  fact  remains,  however,  that  the  attempt 
of  the  books  to  compel  prosecutors  to  use  only  a  case-knife  is  failing. 
They  will  use  the  pickax  in  practice,  and  until  the  law  has  evolved 
some  device  by  which  they  may  use  it  in  all  cases  the  weak  and  friendless 
and  lowly  will  be  at  a  practical  disadvantage,  despite  the  legal  theory. 

Not  only  does  the  law  in  the  books  seek  to  surround  accused  persons 
with  safeguards  which  the  practical  exigencies  of  prosecution  will  not 
put  up  with,  but  at  other  times  it  demands  conviction  of  persons  whom 
local  or  even  general  opinion  does  not  desire  to  punish.  Jury  lawless- 
ness is  the  great  corrective  of  law  in  its  actual  administration.  The 
will  of  the  state  at  large  imposed  on  a  reluctant  community,  the  will  of 
a  majority  imposed  on  a  vigorous  and  determined  minority,  find  the 
same  obstacle  in  the  local  jury  that  formerly  confronted  kings  and 
ministers.  More  than  this,  where  in  a  particular  cause  there  are 
peculiar  considerations  of  mitigation  or  circumstances  requiring  exer- 
cise of  a  dispensing  power,  the  power  of  juries  to  render  general  ver- 
dicts needs  only  a  little  help  from  alienist  theories  of  insanity  to 
enable  a  verdict  to  be  rendered  which  will  accord  with  the  moral  sense 
of  the  community.  Here  again,  as  in  the  case  of  the  "third  degree," 
the  law  is  often  too  mechanical  at  a  point  requiring  great  nicety  of 
adjustment.  And  the  tendency  to  extend  the  scope  of  jury  law- 
lessness, manifest  in  almost  all  jurisdictions,  indicates  that  there  are 
many  points  where  a  readjustment  or  a  better  adjustment  must  be 
had.  For  instance,  legislation  making  questions  of  negligence  in  all 
cases  matters  wholly  for  the  jury  is  becoming  common.  Many  states 
make  juries  judges  of  the  law  in  criminal  cases,  and  a  larger  number  com- 
mit to  juries  the  power  of  sentencing  in  many  classes  of  prosecutions,  or 
even  in  all  cases.  Persistent  attempts  are  making  to  leave  all  cases  of 
contempt  to  juries.  More  than  all  these,  legislation  against  comment 
upon  the  facts  in  the  charge  of  the  Court,  requiring  a  written  charge, 
or  in  some  states  limiting  the  Court  to  granting  or  refusing  written 
instructions  tendered  by  counsel,  has  reduced  the  charge  of  the  Court 
to  an  imposing,  but  ineffective,  ritual  and  turned  the  actual  decision 
of  causes  over  to  a  jury  unfettered  by  rules  of  law. 

What  is  the  purpose  and  what  the  occasion  of  the  extensions  of 
the  powers  of  juries  to  which  I  have  referred?  Practically  the  pur- 
pose is,  in  largest  part,  to  keep  the  letter  of  the  law  the  same  in  the 
books,  while  allowing  the  jury  free  rein  to  apply  different  rules  or 
extra-legal  considerations  in  the  actual  decision  of  causes  —  to  create 
new  breaches  and  widen  existing  breaches  between  law  in  the  books  and 
law  in  action.  The  occasion  is  that  jwpular  thought  and  popular 
action  are  at  variance  with  many  of  the  doctrines  and  rules  in  the 
books,  and  that  the  law  is  trying  to  save  the  latter  and  accommodate 

»  Ibid. 


go     THE   RESPONSE  OF  LEGISLATURES  AND   COURTS 

itself  to  the  former  by  the  good  old  device  of  calling  a  pickax  a  case- 
knife.  If  the  ritual  of  charging  the  jury  on  the  law  with  academic 
exactness  is  preserved,  the  record  will  show  that  the  case  was  decided 
according  to  law,  and  the  fact  that  the  jury  dealt  with  it  according 
to  extra-legal  notions  of  conformity  to  the  views  of  the  community 
for  the  time  being  is  covered  up.  It  is  worthy  of  consideration  whether 
the  exaggerated  tendency  of  American  procedure  in  the  past  fifty  years 
to  try  the  record  rather  than  the  cause  is  not  in  part  a  result  of 
extravagant  powers  of  juries.  To  adjust  the  rules  of  law  to  the 
exigencies  of  action,  we  have  set  up  a  wide  dispensing  power  in  juries. 
To  preserve  the  appearance  of  legality  and  rule  and  system,  we  have 
developed  a  complicated  machinery  of  procedure  and  have  refined  and 
re-refined  its  smallest  details.  In  England,  where  an  unfettered 
Parliament  makes  the  written  law  sensitive  to  public  opinion,  there 
is  very  little  jury  lawlessness.  The  judges  charge  effectively  on  the 
law  and  vigorously  on  the  facts.  They  hold  the  jury  to  the  law.  It 
is  not  entirely  a  coincidence  that  English  courts  waste  but  little  time 
on  procedure. 

Another  attempt  at  adjusting  the  letter  of  the  law  to  the  demands  of 
administration  in  concrete  cases,  while  apparently  preserving  the  law 
unaltered,  is  to  be  seen  in  our  American  ritual,  for  in  many  jurisdictions 
it  is  little  else,  of  written  opinions,  discussing  and  deducing  from  the 
precedents  with  great  elaboration.  As  one  reads  the  reports  critically 
the  conclusion  is  forced  upon  him  that  this  ritual  covers  a  deal  of 
personal  government  by  judges,  a  deal  of  "raw  equity,"  or,  as  the 
Germans  call  it,  of  equitable  application  of  law,  and  leaves  many  a  soft 
spot  in  what  is  superficially  a  hard  and  fast  rule,  by  means  of  which 
concrete  causes  are  decided  in  practice  as  the  good  sense  or  feelings  of 
fair  play  of  the  tribunal  may  dictate.  One  instance  of  this,  in  con- 
stitutional law,  has  been  spoken  of.  Many  others  might  be  adduced 
from  almost  any  department  of  private  law.  Let  one  suffice.  In 
the  law  as  to  easements  it  is  laid  down  that  a  right  may  be  acquired 
by  adverse  user,  although  the  known  use  was  not  objected  to,  if  it 
was  in  fact,  adverse.  But  the  same  courts  say  properly  that  a  per- 
missive user  will  give  no  right.  When,  however,  one  turns  to  the  cases 
themselves  and  endeavors  to  fit  each  case  in  the  scheme,  not  according 
to  what  the  court  said  was  the  rule,  but  according  to  the  facts  of  that 
case,  he  soon  finds  that  the  apparent  rules  to  a  great  extent  are  no 
rules,  and  that  where  to  allow  the  right  would  work  a  hardship  the 
courts  have  discussed  the  decisions  as  to  permissive  user,  and  where, 
in  the  concrete  cause,  it  seemed  fair  to  grant  the  right  they  have  in- 
sisted on  the  adverse  character  of  the  claimant's  conduct.  And  the 
reason  is  not  far  to  seek.  We  have  developed  so  minute  a  jurispru- 
dence of  rules,  we  have  interposed  such  a  cloud  of  minute  deductions 
between  principles  and  concrete  cases,  that  our  case-law  has  become 


TO  THE   NEWER   DEMANDS  91 

ultra-mechanical,  and  is  no  longer  an  effectiv-e  instrument  of  justice 
if  applied  with  technical  accuracy.  In  theory  our  judges  are  tied 
down  rigidly  by  hard  and  fast  rules.  Discretion  is  reduced  to  a  strictly 
defined  and  narrowly  limited  minimum.  Judicial  law-making  has 
produced  a  wealth  of  rules  that  has  exhausted  the  field  formerly 
afforded  for  the  personal  sense  of  justice  of  the  tribunal.  Legally, 
the  judge's  heart  and  conscience  are  eliminated.  He  is  expected  to 
force  the  case  into  the  four  corners  of  the  pigeon-hole  the  books  have 
provided.  In  practice,  flesh  and  blood  will  not  bow  to  such  a  theory. 
The  face  of  the  law  may  be  saved  by  an  elaborate  ritual,  but  men,  and 
not  rules,  will  administer  justice. 

The  lawyer  commonly  flatters  himself  that  the  vagaries  of  legisla- 
tors are  responsible  for  most  of  the  divergence  between  law  in  the  books 
and  law  in  action ;  that  statutes  impossible  of  enforcement,  enacted 
off-hand  without  knowledge  of  the  situation  to  be  dealt  with,  are 
chiefly  to  be  blamed.  No  doubt  crude  legislation  has  been  a  factor 
of  no  mean  importance.  Legislation  imposing  a  heavier  punishment 
upon  one  who  gives  an  adult  a  cigarette  than  upon  blackmail,  or  upon 
many  forms  of  graft  most  detrimental  to  the  proper  conduct  of  public 
business,  does  not  impress  jurors  or  prosecutors,  or  even  judges,  with 
a  sense  of  duty  of  upholding  the  written  law.  No  doubt,  too,  we  have 
had  laws  made  merely  to  please  particular  constituents  and  not  in- 
tended to  be  enforced.  But  to  my  mind  these  are  the  least  of  the 
matter ;  for  our  revered  common  law,  our  judge-made  traditions,  our 
settled  habits  of  legal  thought  often  fare  little  better  in  action.  I  have 
already  spoken  of  our  common  law  of  master  and  servant.  Our 
ultra-individualist  doctrines  of  contributory  negligence  fare  no 
better  at  the  hands  of  juries,  and  legislation  is  either  modifying  them 
or  leaving  the  whole  question  to  juries  in  an  increasing  number  of 
states.  Again,  it  is  a  settled  judicial  doctrine  that  opposes  collusive 
divorce.  Yet  every  morning  paper  bears  witness  how  little  force  it 
has  in  practice.  What  would  the  average  community  do  to  a  supposed 
gentleman  con\dcted  judicially  of  extreme  cruelty  to  a  lady?  Yet 
there  are  coming  to  be  respected  persons  of  high  standing  in  all  com- 
munities against  whom  there  are  such  records.  We  know  that  in 
many  parts  of  the  country,  at  least,  extreme  cruelty  has  become  a 
convenient  fiction  to  cover  up  that  incompatibility  of  temper  that 
may  not  unreasonably  exist  between  a  lady  and  a  gentleman.  The 
legal  theory,  the  judicial  decisions  defining  cruelty,  the  judge-made 
rule  against  collusion  remain  in  the  books.  But  husband  and  wife 
agree  upon  a  settlement  of  property  out  of  court,  they  agree  that  she 
shall  aver  and  prove  cruelty  unopposed,  the  newspapers  i:)ublish  the 
fact,  the  ritual  is  gone  through  with  and  a  decree  is  entered.  In  other 
words,  public  thought  and  feeling  have  changed,  and,  whatever  the 
law  in  the  books,  the  law  in  action  has  changed  with  them. 


92     THE   RESPONSE  OF  LEGISLATURES   AND   COURTS 

Some  of  the  causes  of  divergence  between  the  law  in  the  books  and 
the  law  in  action  have  been  suggested  already.  In  the  first  place,  it 
is  nothing  new.  Law  has  always  been  and  no  doubt  will  always  con- 
tinue to  be,  "in  a  process  of  becoming."  It  must  be  "as  variable  as 
man  himself."^  "Social  life,"  says  Wundt,  "like  all  life,  is  change 
and  development.  Law  would  be  neglecting  one  of  its  most  important 
functions  if  it  ceased  to  meet  the  demands  of  this  ceaseless  evolution."  ^ 
However  much  the  lawyer,  enamored  of  his  ideal  of  an  absolute  cer- 
tainty in  legal  rules,  may  seek  to  evade  these  demands,  the  people 
will  not  permit  it.  Men  will  do  what  they  are  bent  on  doing,  laws 
and  traditions  to  the  contrary  notwithstanding.  The  forms  may  be 
kept,  but  the  substance  will  find  some  fiction  or  some  inter[:)retation, 
or  some  court  of  equity  or  some  practice  of  equitable  application,  to 
sanction  change.  Nevertheless,  the  divergence  between  law  in  books 
and  law  in  action  is  more  acute  in  some  periods  of  legal  history  than 
in  others.  In  all  legal  systems,  periods  of  growth,  periods  in  which 
the  law  is  developing  through  juristic  activity,  alternate  with  periods 
of  stability,  periods  in  which  the  results  of  the  juristic  activity  of  the 
past  are  summed  up  or  worked  out  in  detail  or  merely  corrected  here 
and  there  by  legislation.  Our  common  law  in  America  has  passed 
through  its  period  of  growth.  In  some  parts  of  the  country  this  period 
ended  about  the  time  of  the  Civil  War.  Elsewhere  it  lingered  for 
some  time,  but  in  general  it  may  be  said  to  have  come  to  an  end  about 
1875.  To-day  we  are  manifestly  in  a  period  of  stability.  Our  case 
law  is  incapable  of  solving  new  problems  or  of  meeting  new  situations 
of  vital  importance  to  a  present-day  life.  Judicial  decision  has  failed 
conspicuously  to  provide  a  sound  doctrine  as  to  employer's  liability. 
With  the  theory  of  "general  jurisprudence"  of  the  Supreme  Court  of 
the  United  States  at  hand  to  build  on,  it  has  failed  to  meet  the  general 
demand  for  uniform  commercial  law.  With  centuries  of  discussion 
before  them,  our  courts  have  failed  to  work  out  a  reasonable  or  certain 
law  of  future  interests  in  land.  The  common  law  has  broken  down 
wholly  in  the  attempt  to  prevent  discrimination  by  public  service 
companies,  because  of  inability  to  make  procedure  enforce  its  doctrine 
and  rules.  In  our  western  states,  where  there  was  abundant  oppor- 
tunity for  free  judicial  development,  judicial  law-making  proved 
inadequate  to  adjust  water  rights.  Case  law  has  been  found  unable  to 
hold  promoters  to  their  duty  and  to  protect  those  who  invest  in 
corporate  enterprises  against  mismanagement  and  breach  of  trust. 
It  has  failed  to  work  out  a  scheme  of  responsibility  that  will  hold  legal 
entities,  or  those  who  hide  behind  the  skirts  of  such  entities,  to  their 
duty  to  the  public.  Finally  judicial  decision  is  doing  little  or  nothing 
for  improvement  of  procedure  in  the  face  of  insistent  popular  demand. 

»  Wundt,  Ethik,  2  ed.  p.  556. 
« Ibid.  p.  581. 


TO  THE   NEWER   DEMANDS  93 

On  all  these  points  we  have  had  to  turn  to  legislation.  Juristically, 
then,  we  are  in  a  period  of  stability  and  the  growing  point  of  law  is 
in  legislation.  But  legislation  has  always  brought  with  it  an  im- 
perative theory  of  law,  a  theory  that  law  was  the  command  of  the 
sovereign  and  a  resulting  tendency  to  overlook  the  necessity  of  squar- 
ing the  rules  upon  the  statute  book  with  the  demands  of  human  reason 
and  the  exigencies  of  human  conduct.  More  than  this,  in  periods  of 
stability  the  desire  for  formal  perfection  seizes  upon  jurists.  Justice 
in  concrete  causes  ceases  to  be  their  aim.  Instead  they  aim  at 
thorough  development  of  the  logical  content  of  established  principles 
through  rigid  deduction  and  at  a  certainty  which  shall  wholly  eliminate 
the  personal  equation  in  the  administration  of  justice  and  permit 
judicial  decision  to  be  predicted  with  absolute  assurance.  Such 
periods  have  produced  in  the  past  spurious  interpretation  and  courts 
of  equity.  In  the  present  such  a  period  is  giving  rise  to  a  practice 
of  equitable  application  as  a  means  of  asserting  the  element  of  dis- 
cretion, of  reason,  of  equity  in  its  wider  sense,  inherent  in  all  law. 
The  controversy  between  the  analytical  and  historical  schools  on  the 
one  hand  and  the  equitable  school  on  the  other  over  the  application  of 
the  new  code  in  modern  Germany  is  an  instance  of  the  same  thing ; 
for  in  such  periods  of  juristic  stability  popular  thought  and  popular 
practice  may  be  anything  but  stable,  and  in  consequence  may  diverge 
widely  from  the  doctrines  and  rules  to  be  found  in  the  lawyer's  books. 
This  is  a  general  reason,  applicable  to  all  cases  of  divergence  between 
the  nominal  and  the  actual  law  in  periods  of  legal  maturity. 

Closer  analysis  will  reveal  three  special  causes  behind  the  conditions 
in  American  law  to  which  I  have  called  attention  —  namely,  (i)  that 
our  settled  habits  of  juristic  thought  are  to  no  small  extent  out  of 
accord  with  current  social,  economic  and  philosophical  thinking, 
(2)  the  backwardness  of  the  art  of  legislation,  particularly  in  that  our 
legislative  law-making,  like  our  judicial  law-making,  is  too  rigid, 
attempts  too  much  detail  and  fails  to  leave  enough  margin  for  judicial 
action  in  individual  cases,  and  (3)  the  defects  of  our  administrative 
machinery. 

To  the  ancient,  law  was  sacred.  It  was  not  made  by  man,  and 
could  not  be  changed  by  man.  Man  simply  discovered  it.  Any 
attempt  to  alter  it  was  of  necessity  futile.  We  are  told  that  when 
contact  with  the  Romans  taught  Teutonic  peoples  that  through  the 
written  page  they  could  make  and  alter  the  law  as  well  as  record  it, 
a  great  ferment  resulted.  In  somewhat  the  same  way,  when  lawyers 
find  they  can  deduce  law  from  settled  premises  and  the  people  find 
they  can  enact  it  without  premises,  a  ferment  ensues.  When  legis- 
lation is  merely  a  record  of  law,  when  juristic  speculation  is  merely  a 
record  of  law,  when  juristic  speculation  is  merely  a  discovery  of  the 
dictates  of  reason,  the  resulting  rules  and  doctrines  in  the  books  can 


94     THE   RESPONSE  OF  LEGISLATURES  AND   COURTS 

not  be  far  removed  from  current  popular  thought  and  popular  practice. 
But  once  admit  an  imperative  theory,  and  let  the  rule  be  quod  principi 
legis  habet  vigorem,  and  it  makes  little  difference  whether  the  princeps 
is  a  Roman  emperor,  represented  by  jurisconsults  who  legislate  in  his 
name,  or  the  people  of  an  American  commonwealth  speaking  through 
the  judiciary  committees  of  its  Legislature.  In  either  case  it  will  be 
found  that  a  mass  of  detail  will  in  practice  lack  the  force  of  law. 
But  it  is  equally  true  that  if  we  admit  the  doctrines  of  the  historical 
jurist  and  take  the  juristic  principles  of  the  Roman  law  or  of  Anglo- 
American  common  law  as  the  basis  from  which  to  make  logical  de- 
ductions, the  law  in  the  books  will  more  and  more  become  an  impossible 
attempt  to  govern  the  living  by  the  dead. 

Settled  habits  of  juristic  thought  are  characteristic  of  American  legal 
science.  Our  legal  scholarship  is  historical  and  analytical.  In  either 
event  it  begins  and  ends  substantially  in  Anglo-American  case  law. 
But  the  fundamental  conceptions  of  that  case  law  are  by  no  means 
those  of  popular  thought  to-day.  Nor  is  this  condition  in  any  wise 
unique.  "All  sciences,"  wrote  Ulrich  Zasius  in  1520,  "have  put  off 
their  dirty  clothes,  only  jurisprudence  remains  in  her  rags."  ^  When 
Zasius  wrote  this,  every  other  department  of  learning  was  revivifying 
under  the  influence  of  renewed  study  of  the  classical  texts  by  the  hu- 
manists. Jurisprudence  was  conspicuous  in  its  isolated  existence  to 
the  new  light.  Greek  learning  made  itself  felt  in  Roman  letters  and 
Roman  thought  in  the  first  century  B.C. ;  in  Roman  legal  science  in 
the  second  and  third  centuries  a.d.  Philosophy  had  been  delivered 
from  Aristotle  and  theology  from  the  fathers  of  the  church  for  over  a 
century  before  law  was  set  free  from  Justinian  and  jurisprudence 
was  divorced  from  the  older  theology.  To-day,  while  all  other  sciences, 
in  the  wake  of  the  natural  sciences,  have  abandoned  deduction  from 
predetermined  conceptions,  such  is  still  the  accepted  method  of  juris- 
prudence. After  philosophical,  political,  economic  and  sociological 
thought  have  given  up  the  eighteenth  century  law  of  nature,  it  is  still 
the  premise  of  the  American  lawyer.  In  other  words,  law  has  always 
been  dominated  by  ideas  of  the  past  long  after  they  have  ceased  to 
be  vital  in  other  departments  of  learning.  This  is  an  inherent  diffi- 
culty in  legal  science,  and  it  is  closely  connected  with  an  inherent  diffi- 
culty in  the  administration  of  justice  according  to  law  —  namely, 
the  inevitable  difference  in  rate  of  progress  between  law  and  public 
opinion. 

Of  the  defects  in  our  American  administration  of  justice  with  which 
fault  is  found  to-day,  the  more  serious  are  reducible  ultimately  to 
two  general  propositions  :  (i)  over-individualism  in  our  doctrines  and 
rules,  an  over- individualist  conception  of  justice,  and  (2)  over-reliance 
upon  the  machinery  of  justice  and  too  much  of  the  mechanical  in 

'  Stintzing,  Ulrich  Zasius,  p.  107. 


TO   THE  NEWER  DEMANDS  95 

the  administration  and  application  of  rules  and  doctrines.  At  first 
sight  the  coexistence  of  over-individualism  in  the  rules  of  law  and  in 
the  doctrines  from  which  they  proceed,  with  lack  of  individualization 
or  too  little  adjustment  to  individual  cases  in  the  application  of  the 
rules  and  doctrines,  is  a  paradox.  But  in  truth  the  latter  is  due  to 
exactly  the  same  causes,  and  is  a  result  of  the  same  attitude  toward 
law  and  government  and  of  the  same  frame  of  mind  as  the  former. 
The  former  is  an  assertion  of  the  individual  against  his  fellows  individ- 
ually. The  latter  is  an  assertion  of  the  individual  against  his  fellows 
collectively.  The  former  expresses  the  feeling  of  the  self-reliant  man 
that,  as  a  free  moral  agent,  he  is  to  make  his  own  bargains  and  deter- 
mine upon  his  own  acts  and  control  his  own  property,  accepting  the 
responsibility  that  goes  with  such  power,  subjecting  himself  to  lialiiUty 
for  the  consequences  of  his  free  choice,  but  exempt  from  interference 
in  making  his  choice.  The  latter  expresses  the  feeling  of  the  same 
self-reliant  man  that  neither  the  state,  nor  its  representative,  the 
magistrate,  is  competent  to  judge  him  better  than  his  own  conscience ; 
that  he  is  not  to  be  judged  by  the  discretion  of  men,  but  by  the  in- 
flexible rule  of  the  law.  Each  proceeds  from  jealousy  of  oppression 
of  the  individual.  The  former  is  due  to  fear  he  may  be  oppressed  in 
the  interest  or  for  the  protection  of  others ;  the  latter  is  due  to  fear 
that  a  magistrate,  who  has  power  to  adjust  rules  to  concrete  cases  and 
discretion  in  the  application  of  legal  doctrines,  may  misuse  that  power 
and  abuse  that  discretion  to  the  injury  of  some  individual.  It  assumes 
that  oppression  by  mechanical  laws,  mechanically  executed,  is  pref- 
erable to  government  by  other  men  exercising  their  own  will  and 
judgment,  and  that  elimination  of  every  personal  element  and  pro- 
cedure according  to  hard  and  fast  rules  necessarily  constitutes  justice. 
Each  is  a  phase,  therefore,  of  the  extreme  individualism  which  is  one 
of  the  chief  characteristics  of  the  common  law.  Indeed,  Berolzheimer 
asserts  that  the  one  distinguishing  mark  of  common-law  juristic 
thought  is  this  "unlimited  valuation  of  individual  liberty  and  respect 
for  individual  property."  ^ 

The  individualism  of  our  common  law  is  something  of  far  more  than 
academic  interest.  So  far  as  American  legal  scholars  trouble  them- 
selves with  juristic  theory  at  all,  their  point  of  view  is  usually  historical. 
English  juristic  thought  is  chiefly  analytical.  The  English  hold  to 
the  imperative  theory  because  it  expresses  the  actual  situation  in  the 
English  polity.  What  Parliament  commands  is  enforced  in  the  courts, 
and  hence  visibly  and  ob\'iously  law  is  the  command  of  King,  Lords  and 
Commons.  But  in  the  United  States  Austin's  critics  have  been  read 
much  more  than  Austin  himself.  Although  our  writers  upon  politics 
adopt  the  imperative    theory,^  the  American    doctrine  of    judicial 

1  System  der  Rechts  und  Wirthschaftsphilosophie,  Vol.  II,  p.  i6o. 
'  Willoughby,  The  Nature  of  the  State,  chaps,  vii,  viii. 


96     THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

power  with  respect  to  legislation  makes  against  adherence  to  the 
imperative  theory  by  lawyers.  It  is  not  what  the  Legislature  desires, 
but  what  the  courts  regard  as  juridically  permissible  that  in  the  end 
becomes  law.  Statutes  give  way  before  the  settled  habits  of  legal 
thinking  which  we  call  the  common  law.  Judges  and  jurists  do  not 
hesitate  to  assert  that  there  are  extra-constitutional  limits  to  legislative 
power  which  put  fundamental  common-law  dogmas  beyond  the  reach 
of  statutes.  Under  such  circumstances  an  imperative  theory  is  too 
much  at  variance  with  the  actual  situation  to  find  acceptance.  This 
manifest  inapplicability  of  the  chief  tenet  of  the  analytical  jurists, 
together  with  the  commanding  position  of  Harvard  Law  School  in 
American  legal  education,  has  led  to  an  almost  uncontested  supremacy 
of  the  historical  school.  But  when  we  look  closely  into  the  method  of 
the  historical  school  we  find  it  in  practice  strangely  like  that  of  the 
eighteenth  century  law- of -nature  school  against  which  it  arose  to 
protest. 

Eighteenth  century  jurists  conceived  that  certain  principles  were 
inherent  in  nature,  were  necessary  results  of  human  nature,  and  that 
these  principles  were  discoverable  a  priori.  They  held  that  it  was  the 
business  of  the  jurist  to  discover  these  principles,  and,  when  discovered, 
to  deduce  a  system  therefrom  and  test  all  actual  rules  thereby.  Such 
is  even  now  the  orthodox  method  in  our  constitutional  law.  Our 
bills  of  rights  are  regarded  as  merely  declaratory  of  fundamental 
natural  rights.  Eminent  judges  assert  that  legislation  is  to  be  judged 
by  those  rights  and  not  by  the  constitutional  texts  in  which  they  are 
declared.  And  the  greatest  American  la\^yer  of  recent  tiines,  in 
the  true  method  of  the  eighteenth  century,  lays  down  a  criterion 
of  law  and  legislation  a  priori,  deduces  from  it  an  absolute  test 
of  right  and  wrong  and  proceeds  to  define  the  limits  of  legislative 
law-making  accordingly.  A  portion  of  the  eloquent  passage  from 
Mr.  Carter's  posthumous  work  to  which  I  refer  is  worth  quoting. 
He  says : 

There  is  a  guide  which,  when  kept  clearly  and  constantly  in  view,  suffi- 
ciently informs  us  what  we  should  aim  to  do  by  legislation  and  what  should 
be  left  to  other  agencies.  This  is  what  I  have  so  often  insisted  upon  as 
the  sole  function  both  of  law  and  legislation  —  namely,  to  secure  to  each 
individual  the  utmost  liberty  which  he  can  enjoy  consistently  with  the 
preservation  of  the  like  liberty  to  all  others.  Liberty,  the  first  of  blessings, 
the  aspiration  of  every  human  soul,  is  the  supreme  object.  Every  abridg- 
ment of  it  demands  an  excuse  and  the  only  good  excuse  is  the  necessity  of 
preserving  it.  Whatever  tends  to  preserve  this  is  right.  AU  else  is  wrong. 
To  leave  each  man  to  work  out  in  freedom  his  own  happiness  or  misery, 
to  stand  or  fall  by  the  consequences  of  his  own  conduct,  is  the  true  method 
of  human  disciphne.^ 

1  Carter,  Law,  its  Origin,  Growth  and  Function,  p.  337. 


TO  THE  NEWER  DEMANDS  97 

My  excuse  for  this  long  quotation  is  that  it  is  an  authoritative  ex- 
position of  current  juristic  thought  in  America.  To  la\\yers  all  that 
I  have  said  may  seem  to  go  without  saying,  but  to  economists,  to  so- 
ciologists, to  students  of  comparative  legislation,  of  politics,  or  of  the 
juristic  thought  of  the  rest  of  the  world,  the  eighteenth  century  in- 
terpretation of  law  as  existing  solely  to  secure  liberty,  the  acceptance  of 
Herbert  Spencer's  Kantian  formula  of  justice,  the  theory  that  govern- 
ment is  to  be  held  down  to  the  inevitable  minimum  and  the  uncom- 
promising insistence  that  men  should  be  required  to  act  unaided  by 
legal  restraints  in  their  own  interest  and  made  to  stand  or  fall  by  the 
consequences  of  their  choice,  belie  the  twentieth  century  date  upon  the 
title  page.  Yet  the  author  believed  that  he  wrote  from  the  historical 
standpoint,  and  he  represents  undoubtedly  the  views  of  the  historical 
school  in  America.  For  the  historical  school  too  works  a  priori.  It 
has  deduced  from  and  tested  existing  doctrines  by  a  fixed,  arbitrary, 
external  standard.  Having  no  philosophical  method  of  their  own,  as 
Berolzheimer  has  pointed  out,  when  the  German  historical  jurists  over- 
threw the  premises  of  the  eighteenth  centur}^  law-of-nature  school, 
they  preserved  the  method  of  their  predecessors,  merely  substituting 
new  premises.  They  had,  he  says,  neither  the  capacity  nor  the  desire 
to  put  a  new  philosophy  of  law  in  the  place  of  the  buried  law  of  nature. 
They  sought  the  nature  of  right  and  of  law  in  historical  deduction  from 
the  Roman  sources,  from  Germanic  legal  institutions,  and  from  the 
juristic  development  based  thereon. ^  In  the  United  States  this  natural 
law  upon  historical  premises  has  gone  even  further.  With  us  the 
basis  of  all  deductions  is  the  classical  common  law  —  the  English 
decisions  and  authorities  of  the  seventeenth,  eighteenth  and  first  half 
of  the  nineteenth  centuries.  We  make  of  this  a  very  Natiirrecht.  We 
test  all  new  situations  and  new  doctrines  by  it.  We  construe  statutes 
by  it,  and  Mr.  Carter  tells  us  that  it  is  a  wise  doctrine  to  presume  that 
legislatures  intend  no  innovations  upon  this  common  law,  and  to 
assume,  so  far  as  possible,  that  statutes  were  meant  to  declare  and 
reassert  its  principles.^  More  than  this,  through  the  power  of  courts 
over  unconstitutional  legislation  and  the  doctrine  that  our  bills  of 
rights  are  declaratory,  we  force  it  upon  modern  social  legislation. 
Hence  the  character,  the  attitude  —  if  I  may  fall  back  upon  a  German 
word,  the  W eUanschauung  —  of  this  body  of  doctrine  becomes  of  the 
utmost  practical  importance.  Not  merely  the  jurist,  but  the  legislator, 
the  sociologist,  the  criminologist,  the  labor  leader,  and  even,  as  in  the 
case  of  our  corporation  law,  the  business  man,  must  reckon  with  it. 
For  the  fundamental  conceptions  of  our  traditional  case  law  have 
come  to  be  regarded  as  fundamental  conceptions  of  legal  science. 
When  in  a  period  of  coUectivist  thinking  and  social  legislation  courts 

1  System  der  Rechts  und  Wirthschaftsphilosophie,  Vol.  II,  p.  4. 

2  Carter,  Law,  its  Origin,  Growth  and  Function,  pp.  308^3oq. 


98     THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

and  lawyers  assume  that  the  only  permissible  way  of  thinking  or  of 
law-making  is  limited  and  defined  by  individualism  of  the  old  type, 
when  while  men  are  seeking  to  promote  the  ends  of  society  through 
social  control,  jurists  lay  it  down  that  the  only  method  of  human  disci- 
pline is  "to  leave  each  man  to  work  out  in  freedom  his  own  happiness 
or  misery,"  conflict  is  inevitable.  With  jurisprudence  once  more  in  the 
rags  of  a  past  century,  while  kindred  sciences  have  been  reclothed, 
we  may  be  sure  that  law  in  the  books  will  often  tend  to  be  very  differ- 
ent from  the  law  in  action. 

Probably  one  may  summarize  this  first  point  by  saying  that  a  gulf 
has  grown  up  betw^een  social  justice,  which  is  the  end  men  are  seeking 
to-day,  and  legal  justice ;  that  the  movement  away  from  the  Puritan 
standpoint  in  our  social  and  economic  and  political  thought  has  not 
been  followed  by  legal  thought,  and  that  we  still  adhere  to  the  idealistic, 
or  at  least  to  the  political  interpretation  of,  legal  science,  although  in 
kindred  branches  of  learning  the  economic  and  social  interpretation  is 
more  and  more  accepted. 

That  the  legal  idea  of  justice  is  not  the  idea  entertained  in  the  re- 
lated sciences  is  becoming  a  commonplace  of  the  sociologists.  They 
do  not  hesitate  to  contrast  social  justice,  and  legal  justice.^  As  Pro- 
fessor Commons  put  it  recently,  "Justice  is  not  merely  fair  play  be- 
tween individuals,  as  our  legal  philosophy  would  have  it  —  it  is  fair 
play  between  social  classes."  ^  And  one  has  only  to  read  the  judicial 
decisions  upon  liberty  of  contract  to  see  that  his  conception  of  legal 
justice  is  that  entertained  by  the  courts.  As  Judge  Baldwin  has  well 
put  it,  "The  circle  of  individual  rights  narrows."  ^  But  courts  and 
lawyers  seem  to  conceive  it  their  duty  to  oppose  and  resist  this  narrow- 
ing at  every  point. 

Sometime  in  the  future  when  a  philosophical  jurist  writes  upon 
the  spirit  of  the  common  law,  we  may  have  a  worthy  account  of  the 
relation  between  Puritan  theology  and  the  common  law.  Such  an 
account  will  be  as  much  a  part  of  the  philosophical  history  of  our  sys- 
tem as  the  relation  of  Stoic  philosophy  to  Roman  law  is  a  part  of  the 
history  of  that  system,  and  hence  an  important  consideration  in  legal 
science.  I  have  ventured  some  discussion  of  this  on  another  occasion. 
Here  I  need  only  say  that  it  is  not  an  accident  that  the  great  periods 
of  common  law  history,  the  periods  of  growth,  the  periods  when  doc- 
trines were  worked  out  and  took  shape,  were  periods  in  which  religious 
thought  was  a  prime  form  of  mental  activity  and  were  periods  in  which 
the  Puritan  was  a  potent  force  in  religious  thought.  The  work  of  the 
English  courts  prior  to  Coke  was  summed  up  for  us  and  handed  down 

1  Ward,  Applied  Sociology,  22-24;  Willoughby,  Social  Justice,  20-25. 
^  13  Amcrkan  Journal  of  Sociology,  764. 

3  The  Narrowing  Circle  of  Indi\'idual  Rights  (Reprint  from  Proc.  Va.  Bar  Assn.  190S), 
p.  4. 


TO  THE  NEWER   DEMANDS  99 

to  us  by  that  indefatigable  scholar  in  what  we  hav.e  chosen  to  consider 
an  authoritative  form,  and  we  have  looked  at  it  through  his  spectacles 
ever  since.  Hence  we  may  neglect  the  periods  of  growth  prior  to  the 
age  of  Elizabeth  and  James  I.,  since  their  results  in  our  law  to-day 
depend  upon  the  way  in  which  they  appealed  to  the  end  of  the  sLx- 
teenth  and  beginning  of  the  seventeenth  centuries.  Again  we  may 
pass  over  the  constructive  work  of  the  eighteenth  century,  for  that  was 
done  in  equity  and  the  law  merchant.  Neither  of  these  strictly  is 
part  of  the  common  law,  and,  so  far  from  their  affecting  the  spirit  of 
the  common  law,  the  spirit  of  the  common  law  has  affected  them 
powerfully.  But  there  are  two  great  growing  periods  of  our  common- 
law  system ;  two  periods  in  which  principles  and  doctrines  were  forma- 
tive, in  which  our  authorities  have  summed  up  the  past  for  us  and 
have  given  us  principles  for  the  future.  These  periods  are:  (i)  the 
classical  common-law  period,  the  end  of  the  sixteenth  and  beginning 
of  the  seventeenth  century,  and  (2)  the  period  that  some  day  may  be 
held  no  less  classical  than  the  first  —  the  period  of  legal  development 
in  America  that  came  to  an  end  with  the  Civil  War.  In  the  one  the 
task  was  to  go  over  the  decisions  and  legislation  of  the  past  and  make 
a  system  for  the  future.  In  the  other  the  task  was  to  examine  the 
whole  body  of  English  case  law  with  reference  to  what  was  applicable 
to  the  facts  of  life  in  America  and  what  was  not.  Obviously  the  spirit 
of  these  times  and  of  the  men  of  these  times,  whose  juristic  labors 
gave  us  what  we  call  our  common  law,  could  not  fail  to  give  color  to 
the  whole  system.  But  the  age  of  Coke  was  the  age  of  the  Puritans 
in  England  and  the  period  that  ends  with  our  Civil  War  was  the  age  of 
the  Puritans  in  America.  We  must  not  forget  that  the  Puritan  had 
his  own  way  in  America,  that  he  was  in  the  majority,  had  no  powerful 
establishment  to  contend  with,  and  made  institutions  to  his  own  liking. 
For  again  it  is  not  an  accident  that  common-law  principles  have  at- 
tained their  highest  and  most  complete  logical  development  in  America, 
and  that  we  are  and  long  have  been  more  thoroughly  a  common-law 
country  than  England  herself.  It  is  significant  that  the  classical  ex- 
positions of  characteristic  common-law  views  upon  employer's  liability, 
for  example,  upon  rights  of  adjoining  owners  with  respect  to  surface 
water,  and  upon  abusive  exercise  of  rights  have  come  from  New  England. 
The  fundamental  proposition  from  which  the  Puritan  proceeded  was 
the  doctrine  that  man  was  a  free  moral  agent,  with  power  to  choose 
what  he  would  do  and  a  responsibility  coincident  with  that  power. 
He  put  individual  conscience  and  individual  judgment  in  the  first 
place.  No  authority  must  be  permitted  to  coerce  them,  but  every  one 
must  assume  and  abide  the  consequences  of  the  choice  he  was  free  to 
make.  In  its  application  this  led  to  a  regime  of  "consociation,  but  not 
subordination."  ^     "We  are  not  over  one  another,"  said  Robinson, 

1  Lord  Acton,  Lectures  on  Modern  History,  p.  200. 


loo    THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

"  but  with  one  another."  ^  Hence  law  was  a  device  to  secure  liberty, 
its  only  justification  was  that  it  preserved  individual  liberty,  and  its 
sole  basis  was  the  free  agreement  of  the  individual  to  be  bound  by  it. 
The  early  history  of  New  England  abounds  in  examples  of  attempts  to 
make  this  a  practical  political  doctrine.^  The  good  side  of  all  this  we 
know  well.  On  the  side  of  politics,  the  conception  of  the  people — not 
as  a  mass,  but  as  an  aggregate  of  individuals  —  the  precise  ascription 
of  rights  to  each  of  these  individuals,  the  evolution  of  the  legal  rights 
of  Englishmen  into  the  natural  rights  of  man,  have  their  immediate 
origin  in  the  religious  phase  of  the  Puritan  revolution.^  But  on  the 
side  of  law  it  has  given  us  the  conception  of  liberty  of  contract,  which 
is  the  bane  of  all  labor  legislation,  the  rooted  objection  to  all  power 
of  application  of  rules  to  individual  cases  which  has  produced  a 
decadence  of  equity  in  so  many  of  our  state  courts,  the  insistence  upon 
and  faith  in  the  mere  machinery  of  justice  which  makes  American  legal 
procedure  almost  impossible  of  toleration  in  the  business  world  of 
to-day,  the  notion  of  punishing  the  vicious  will  and  of  the  necessary 
connection  between  wrongdoing  and  retribution  which  make  it  so 
difficult  for  our  criminal  law  to  deal  with  anti-social  actions  and  to 
adjust  itself  in  its  application  to  the  exigencies  of  concrete  criminality. 

Finally,  our  interpretation  of  jurisprudence  and  of  legal  history 
is  either  idealistic  or  political.  Brooks  Adams  is  the  only  American 
writer  to  insist  upon  the  economic  and  social  interpretation.  But 
until  we  come  to  look  at  our  legal  history  in  this  way,  history  on  which 
our  jurists  rely  chiefly  is  not  unlikely  to  prove  a  blind  guide.  The 
history  of  juristic  thought  tells  us  nothing  unless  we  know  the  social 
forces  that  lay  behind  it. 

I  have  discussed  at  length  the  effect  of  stability  of  juristic  thought 
and  the  nature  of  American  juristic  thought  because  those  are  the 
subjects  which  the  lawyer  must  ponder.  It  is  there  that  the  diver- 
gence between  law  in  books  and  law  in  action  has  a  lesson  for  him. 
The  other  two  causes  may  be  looked  at  only  in  the  briefest  way. 

Rigidity  of  legislation  is  best  illustrated  in  the  codes  of  procedure 
and  practice  acts,  so  common  in  the  United  States,  which  in  large 
measure  have  defeated  their  own  ends  by  going  too  much  into  detail. 
Legislation  must  learn  the  same  lesson  as  case  law.  It  must  deal 
chiefly  with  principles ;  it  must  not  be  over- ambitious  to  lay  down 
universal  rules.  We  need  for  a  season  to  have  principles  from  which 
to  deduce,  not  rules,  but  decisions.  Legislation  which  attempts  to 
require  cases  to  be  fitted  to  rules  instead  of  rules  to  cases  will  fare 
no  better  than  judicial  decisions  which  attempt  the  same  feat.  So 
long  as  an  imperative  theory  leads  the  law-maker  to  think  that  he  has 

1  Lord  Acton,  Lectures  on  Modern  History,  p.  200. 

2  Merriam,  Am.  Political  Theories,  p.  19. 

8  Dunning,  Political  Theories,  from  Luther  to  Montesquieu,  pp.  220-221. 


TO  THE  NEWER  DEMANDS  lOi 

only  to  put  his  \'ie\vs  of  all  the  details  of  legal  and  judicial  administra- 
tion into  sections  and  chapters,  and,  as  the  will  of  the  sovereign,  they 
will  become  effective  law,  the  law  upon  the  statute  books  will  be  far 
from  representing  what  takes  place  actually  in  the  courts. 

The  third  cause  mentioned,  defective  administration,  perhaps  more 
than  any  other  cause,  is  immediately  responsible  for  making  law  in 
action  different  from  law  in  the  books.  If  any  legislation  has  an  active 
public  interest  behind  it,  and  is  sought  to  be  enforced  by  zealous 
partisans  whose  wishes  command  the  attention  of  executive  officers, 
it  is  labor  legislation.  But  the  proceedings  of  the  American  Associa- 
tion for  Labor  Legislation  bear  abundant  and  eloquent  testimony  that 
our  copious  labor  legislation  for  the  most  part  fails  of  effect  because 
of  defective  administration.^  Both  judicial  and  executive  administra- 
tion are  at  fault.  A  great  deal  of  the  law  in  the  books  is  not  enforced 
in  practice  because  our  machinery  of  justice  is  too  slow,  too  cumber- 
some and  too  expensive  to  make  it  effective.  One  need  only  instance 
petty  cases,  triable  by  justices  of  the  peace,  appealable  for  a  complete 
new  trial  to  superior  courts  of  record  and  then  reviewable  by  supreme 
courts  or  courts  of  appeals.  It  is  not  to  be  expected  that  such  a 
machinery  of  justice  will  afford  any  real  check  upon  extortion  by  public 
service  companies.  But,  beyond  this,  we  have  preserved  an  etiquette 
of  justice,  devised  in  large  part  in  a  past  age  of  formal  over-refinement, 
no  small  part  of  which  is  as  out  of  place  in  a  twentieth  century  Ameri- 
can court  of  justice  as  gold  lace  and  red  coats  upon  a  modern  skirmish 
line.  It  is  chiefly,  however,  in  executive  administration  that  laws  fail 
of  effect.  The  clash  of  departments  or  even  of  officials,  so  charac- 
teristic of  our  polity,  the  extreme  decentralization  that  allows  a  local 
jury  or  even  a  local  prosecutor  to  hold  up  instead  of  uphold  the  law  of 
the  state,  the  elaborate  machinery  of  check,  balance  and  subdivision 
which  the  Puritan  jealousy  of  the  magistrate  has  fixed  in  our  institu- 
tions, too  often  result  in  a  legal  paralysis  of  legal  administration. 
Effective  administration  is  perhaps  the  great  prolalem  of  the  future. 
But  that  is  a  problem  chiefly  for  the  statesman  and  the  student  of 
politics. 

For  the  lawyer,  the  moral  of  the  difference  between  law  in  books 
and  law  in  action  is  not  to  be  obsessed  with  the  notion  that  the  com- 
mon law  is  the  beginning  of  wisdom  and  the  eternal  jural  order.  Let 
us  not  be  afraid  of  legislation,  and  let  us  welcome  new  principles,  in- 
troduced by  legislation,  which  express  the  spirit  of  the  time.  Let  us 
look  the  facts  of  human  conduct  in  the  face.  Let  us  look  to  economics 
and  sociology  and  philosophy,  and  cease  to  assume  that  jurisprudence 
is  self-sufficient.  It  is  the  work  of  lawyers  to  make  the  law  in  action 
conform  to  the  law  in  the  books,  not  by  futile  thunderings  against 
popular  lawlessness,  nor  eloquent  exhortations  to  obecUence  to  the 

1  Proc.  Second  Annual  Meeting  of  Am.  Assn.  for  Labor  Legislation,  pp.  9,  32,  92. 


I02     THE  RESPONSE  OF  LEGISLATURES  AND   COURTS 

written  law,  but  by  making  the  law  in  the  books  such  that  the  law  in 
action  can  conform  to  it,  and  providing  a  speedy,  cheap  and  efficient 
legal  mode  of  applying  it.  On  no  other  terms  can  the  two  be  recon- 
ciled. In  a  conflict  between  the  law  in  books  and  the  national  will 
there  can  be  but  one  result.  Let  us  not  become  legal  monks.  Let  us 
not  allow  our  legal  texts  to  acquire  sanctity  and  go  the  way  of  all 
sacred  writings.  For  the  written  word  remains,  but  man  changes. 
Whether  laws  of  Manu  or  Zarathustra  or  Moses,  or  the  fourteenth 
amendment,  or  the  doctrine  of  the  Dartmouth  CoUege  case,  or  Munn 
vs.  Illinois,  or  the  latest  legislative  discovery  in  Oklahoma,  all  laws 
tell  us  the  same  tale. 


Ill 

THE   POLICE   POWER 

WHAT  IS  THE   POLICE   POWER? 

By  Walter  Wheeler  Cook,  of  the  University  of  Wisconsin 

(From  the  Columbia  Law  Review,  IMay,  1907) 

Nearly  aU  of  the  legislation  regulating  industry  finds  its  sanction  in  that 
elastic,  indefinable  power  called  the  "police  power."  Hence,  any  study  of 
the  relation  of  government  to  industry  must  pivot  on  an  understanding  of 
the  police  power  and  how  federal  and  state  courts  interpret  it.  —  Editor's 
Note. 

No  phrase  is  more  frequently  used  and  at  the  same  time  less  under- 
stood than  the  one  which  forms  the  subject  of  the  present  discussion. 
It  is  a  common  thing  for  our  courts  to  say  that  the  police  power  does 
not  admit  of  an  exact  definition,  yet  only  a  few  of  those  who  make  the 
remark  appear  to  understand  clearly  why  this  should  be  so.  As  the 
eminent  holder  of  the  Roosevelt  Professorship  in  Berlin  has  so  well  said : 

The  police  power  is  the  dark  continent  of  our  jurisprudence.  It  is  the 
convenient  repository  of  everything  for  which  our  juristic  classification  can 
find  no  other  place. ^ 


As  a  convenient  method  of  approaching  our  subject,  let  us  examine 
briefly  the  definitions  or  descriptions  given  by  two  or  three  wTiters 
who  have  studied  the  problem  with  a  considerable  degree  of  thorough- 
ness. The  author  whose  words  have  already  been  c^uoted,  after  show- 
ing the  apparent  confusion  of  the  Supreme  Court  of  the  United  States 
upon  the  question,  begins  with  the  derivation  of  the  words  from  the 
Greek  and  traces  their  introduction  into  the  political  science  of  modern 
Europe  and  their  history  since,  and  concludes  by  stating  what  he  con- 
ceives to  be  the  most  recent  view  of  political  science  upon  the  scope 
of  the  police  power,  closing  as  follows : 

1  Burgess,  Political  Science  and  Comparative  Constitutional  Law,  Vol.  II,  p.  136. 


I04  THE   POLICE  POWER 

The  political  science  of  the  present  century  has  resurveyed  the  field  of 
the  police  power,  and  has  brought  out  four  very  fundamental  distinctions 
in  regard  to  it.  The  first  is,  that  the  police  power  is,  in  its  nature,  adminis- 
trative, not  legislative  or  judicial ;  the  second  is,  that  it  is  not  coextensive 
with  the  W'hole  scope  of  internal  administration,  as  distinguished  from 
external,  but  is  only  a  branch  of  internal  administration ;  the  third  is,  that, 
in  the  exercise  of  the  police  functions,  the  executive  discretion  should  move 
within  the  lines  of  general  principles  prescribed  either  by  the  constitution 
or  the  legislature ;  and  the  fourth  is,  that  the  community  in  its  most  local 
organization  should  participate,  so  far  as  possible,  in  the  exercise  of  the 
police  power.  .  .  .  Every  right  acknowledged  to  the  individual  by  the 
state  may  be  abused  by  him  to  the  detriment  of  the  state.  The  state  must 
therefore  confer  upon  the  government  the  power  to  watch  for  and  prevent 
such  abuse.     This  is  the  police  power.^ 

The  most  noteworthy  thing  about  this  treatment  of  the  subject  is 
that  the  problem  is  treated  as  being  purely  one  in  political  science  as 
distinguished  from  constitutional  law.  The  author  is  describing  the 
meaning  which  ought,  in  his  opinion  as  a  political  scientist,  to  be  given 
to  the  phrase  "the  police  power" ;  or  perhaps  a  more  accurate  state- 
ment would  be,  that  he  is  describing  the  limitations  which  he  thinks 
ought  to  be  imposed  by  the  constitution  upon  the  government  in 
behalf  of  individual  liberty.  .  .  . 


The  author  of  the  most  recent  and  without  doubt  the  most  valuable 
treatise  upon  the  police  power  ^  pursues  an  analytical  rather  than  an 
historical  method  in  dealing  with  the  subject.  He  begins  ^  by  making 
an  analysis  and  classification  of  the  objects  of  government  in  the  ab- 
stract, finding  them  to  fall  into  three  classes:  (i)  the  maintenance 
of  national  existence ;  (2)  the  maintenance  of  right,  or  justice ; 
(3)  the  promotion  of  the  public  welfare.  Under  the  first  he  includes 
international  relations,  governmental  organization  and  support,  war, 
and  the  putting  down  of  internal  revolt  and  insurrection ;  under  the 
second,  the  administration  of  civil  and  criminal  justice ;  under  the 
third,  not  merely  the  prevention  of  wrongful  acts  but  the  imposition 
of  positive  regulations  designed  to  promote  the  general  welfare.  The 
general  welfare,  he  finds,  "embraces  a  variety  of  interests,  calling  in 
different  degrees  for  public  care  and  control.  They  may  be  classified 
as  follows :  the  primary  social  interests  of  safety,  order  and  morals ; 
economic  interests;  and  non-material  and  political  interests."'* 
The  police  power,  he  concludes,  is  occupied  with  the  accomplishment 
of  the  objects  which  fall  under  the  third  class.  The  essence  of  the 
police  power,  then,  is  the  exercise  of  control  for  the  purpose  of  promot- 
ing the  general  welfare. 

'  Burgess,  op.  cit.  Vol.  I,  p.  216.  '  Ibid.  p.  3- 

2  Freund,  The  Police  Power.  *  Ibid.  p.  7. 


THE  POLICE  POWER  105 

Here  again  we  have  a  solution  of  our  problem  which  pursues 
the  methods  of  the  political  scientist  rather  than  those  of  the  con- 
stitutional lawyer,  the  difference  being  that  this  time  the  analytical 
is  substituted  for  the  historical  method.  Mr.  Freund's  conclusion, 
however,  as  to  the  scope  of  the  police  power  is  obviously  far  different 
from  that  of  Mr.  Burgess. 

Let  us  now  turn  our  attention  to  the  discussions  of  a  third  writer 
whose  valuable  contribution  to  the  literature  of  the  subject  is  too  little 
known  to  the  legal  profession  generally,  owing,  doubtless,  to  the  place 
of  its  publication.^  Like  Mr.  Burgess,  Mr.  Hastings  pursues  the 
historical  method,  but  with  this  difference,  that  he  writes  as  a  student 
of  constitutional  law  rather  than  as  a  political  scientist ;  that  is  to 
say,  he  traces  the  history  of  the  phrase  in  the  discussions  of  American 
constitutional  lawyers,  particularly  in  the  opinions  of  the  judges  of 
the  Supreme  Court  of  the  United  States,  seeking  thus  to  ascertain  the 
meaning  which  the  phrase  has  come  to  have  when  used  by  the  courts. 
It  is  difficult  to  state  his  conclusion  without  giving  to  one  who  has 
not  had  the  pleasure  of  reading  his  discussion  an  erroneous  conception 
of  his  meaning.     He  says : 

The  police  power  is  a  fiction.  Every  judge  whom  we  have  seen  attempt 
to  analyze  it  finds  in  it  INIadison's  "indefinite  supremacy"  of  the  state.  .  .  . 
The  term  is  certainly  a  mere  abstract  and  collective  one  for  the  state,  where 
regarded  as  employed  in  certain  functions,  and  the  constant  forgetting  of 
this  fact  has  made  endless  trouble.^ 

Mr.  Hastings,  then,  from  a  study  of  the  use  of  the  phrase  by  the 
courts,  considers  it  as  standing  for  the  "indefinite  supremacy"  of 
the  State ;  as  another  name  for  the  State  when  employed  in  certain 
functions.  This  may  all  be  true  enough  —  and,  as  I  shall  show  later, 
I  thmk  it  is  —  but  it  is  a  bit  too  vague  to  be  entirely  satisfactory. 

.  .  .  Let  us  then  first  glance,  very  briefly  indeed,  at  the  history  of  the 
phrase.  For  our  purposes  I  think  we  need  not  go  farther  back  than 
the  constitutional  convention  of  1787  which  framed  our  present  consti- 
tution. At  that  time  a  phrase  somewhat  similar  to  the  one  we  are  dis- 
cussing seems  to  have  been  in  more  or  less  general  use.  On  July  17th, 
in  discussing  the  sixth  resolution  of  the  Committee  of  the  Whole,  which 
empowered  the  national  congress  "to  legislate  in  all  cases  to  which  the 
separate  States  are  incompetent,  or  in  which  the  harmony  of  the  United 
States  may  be  interrupted  by  the  exercise  of  individual  legislation," 
Mr.  Sherman  of  Connecticut  proposed  in  its  place  to  insert:  "to 
make  laws  binding  on  the  people  of  the  United  States  m  all  cases  which 

1  Hastings,  W.  G.,  The  Development  of  Law  as  Illustrated  by  the  Decisions  relating  to 
the  Police  Power  of  the  State.  Proceedings  of  the  American  Philosophical  Society,  Sept. 
iQCxj.     Also  printed  for  private  distribution. 

'^  Ibid.  igi. 


io6  THE   POLICE   POWER 

may  concern  the  common  interests  of  the  Union  ;  but  not  to  interfere 
with  the  government  of  the  individual  States  in  any  matters  of  internal 
police  which  respect  the  government  of  such  States  only,  and  wherein 
the  general  welfare  of  the  United  States  is  not  concerned."  This 
proposition  had  the  support  of  Mr.  James  Wilson,  but  was  opposed 
by  Mr.  Gouverneur  Morris  on  the  ground  that  "the  internal  police, 
as  it  would  be  called  and  understood  by  the  States,  ought  to  be  in- 
fringed in  many  cases,  as  in  the  case  of  paper-money,  and  other  tricks 
by  which  citizens  of  other  States  may  be  affected."  This  discussion 
is  interesting  in  that  it  seems  to  show  that  the  phrase  "internal 
police"  was  used  to  signify  the  whole  power  of  internal  government 
which  would  remain  in  the  hands  of  the  States  when  the  powers  enu- 
merated had  been  vested  by  the  constitution  in  the  national  govern- 
ment, this  being,  in  general,  a  power  to  promote  the  general  welfare  of 
the  inhabitants  of  the  State.  Another  instance  of  the  use  of  the  phrase 
is  found  in  a  report  of  a  special  committee  made  to  the  convention 
on  August  2 2d.  The  question  at  once  arises  :  Is  there  any  connection 
between  the  two  phrases?  I  believe  that  there  is,  and  that  a  study 
of  the  subsequent  history  will  show  that  the  one  was  substituted  for 
the  other,  and  that  the  more  modern  phrase,  "the  police  power,"  is 
to-day  used  by  our  courts  in  much  the  same  sense  that  the  earlier 
phrase  was  used  in  the  convention  by  the  framers  of  the  constitution. 
As  Mr.  Hastings  has  shown.  Chief  Justice  Marshall  seems  to  be  entitled 
to  any  credit  that  may  be  due  for  the  introduction  of  the  modern 
phrase.^  Space  fails  me  to  trace  the  evolution  in  detail,  but  it  is  suffi- 
cient to  point  out  that  we  find  the  chief  justice  using  in  1824^  the 
phrase  "internal  police,"  while  in  1827  he  substitutes  for  it  "the 
police  power."  ^  This  is  taken  up  by  Judge  Barbour  in  1837  ■*  and  we 
find  him  saying : 

We  choose  to  plant  ourselves  on  what  we  consider  impregnable  positions. 
They  are  these :  That  a  State  has  the  same  undeniable  and  unlimited 
jurisdiction  over  persons  and  things  within  its  territorial  limits,  as  any 
foreign  nation,  where  that  jurisdiction  is  not  surrendered  or  restrained  by 
the  constitution  of  the  United  States.  That,  by  virtue  of  this,  it  is  not  only 
the  right,  but  the  bounden  and  solemn  duty,  of  a  State  to  advance  the 
safety,  happiness,  and  prosperity  of  its  people,  and  to  provide  for  its  general 
welfare,  by  any  and  every  act  of  legislation  which  it  may  deem  conducive 
to  these  ends;  where  the  power  over  the  particular  subject,  or  the  manner 
of  its  exercise  is  not  surrendered  or  restrained,  in  the  manner  just  stated. 
That  all  those  powers  which  relate  to  merely  municipal  legislation,  or  what 
may,  perhaps,  more  properly  be  called  internal  police,  are  not  thus  sur- 
rendered or  restrained ;  and  that,  consequently,  in  relation  to  these,  the 
authority  of  a  state  is  complete,  unqualified  and  exclusive. 

1  Hastings,  op.  cit.  lo. 

2  Gibbons  vs.  Ogden,  g  Wheat,  i,  210. 
'  Brown  vs.  Maryland,  12  Wheat.  419. 
^New  York  vs.  Miki.  11  Pet.  102. 


THE   POLICE   POWER  107 

He  then  goes  on  to  describe  the  scope  of  this  police  power  (as  he 
calls  it  in  another  passage),  and  includes  within  it,  apparently,  the 
sum  total  of  the  powers  of  government  left  in  the  States  by  the  consti- 
tution of  the  United  States,  thus  making  it  coextensive  with  what 
the  authors  of  The  Federalist  call  "the  residuary  sovereignty"  of  the 
States.  Thus  far,  then,  the  phrase  seems  to  mean  very  much 
what  we  may  guess  was  meant  by  Sherman  and  Morris  when  they 
were  discussing  the  powers  of  "internal  police"  which  the  States  would 
have  under  the  new  constitution.  In  later  opinions  of  the  Supreme 
Court,  however,  we  find  a  somewhat  narrower  statement  of  the  scope 
of  the  police  power  to  which  I  shall  call  attention  later. 

Leaving  for  the  time  being  the  field  of  history,  let  us  turn  our  atten- 
tion now  to  the  making  of  a  brief  survey  of  the  distribution  of  govern- 
mental power  in  the  American  constitutional  system.  This  distribu- 
tion may  be  described  as  follows :  First,  the  constitution  denies  to 
any  government  in  our  system,  including,  therefore,  both  the  national 
government  and  the  States,  the  exercise  of  certain  powers,  the  right 
to  do  certain  things  —  for  example,  in  the  Thirteenth  Amendment 
forbidding  slavery.  The  power  to  do  any  of  these  things,  then,  is 
under  the  constitution  vested  exclusively  in  the  bodies  charged  with 
the  amendment  of  the  constitution  itself.  Second,  of  the  remaining 
powers  which  may  conceivably  be  exercised  by  a  government,  the 
constitution  vests  a  portion  in  the  government  of  the  United  States, 
so  that,  to  use  the  technical  phrase,  the  government  of  the  United 
States  is  a  government  of  enumerated  powers.  The  word  "enu- 
merated" here,  of  course,  includes  not  only  those  powers  expressly 
mentioned  but  also  all  powers  incidental  to  one  or  more  or  all  of  the 
powers  expressly  delegated.^  Examining  these  powers  in  the  light  of 
the  decisions  of  the  Supreme  Court  of  the  United  States,  we  find  that 
for  our  purposes  we  must  classify  them  into  two  groups :  (a)  powers 
vested  exclusively  in  the  national  government ;  {b)  powers  not  ex- 
clusively vested  in  the  national  government.  With  respect  to  those 
falling  under  (a),  it  is  obvious  that  there  is  implied  a  denial  of  power 
to  the  States  to  exercise  them;  with  repect  to  those  under  (6),  it  is 
of  course  the  recognized  principle  that  the  States  may  exercise  these 
powers,  subject  always  to  the  proviso  that,  whenever  the  State  statute 
is  inconsistent  with  an  act  of  Congress,  passed  in  pursuance  of  its 
power  to  regulate  the  same  matter,  the  State  law  must  yield  so  long 
as  the  act  of  Congress  remains  in  force.^ 

'Compare  Sections  si-xxxix  of  the  Australian  constitution,  which  reads  as  follows: 
The  Parliament  (of  the  national  government)  shall,  subject  to  this  constitution,  have  power 
to  make  laws  for  (he  peace,  order,  and  good  government  of  the  Commonwealth,  with  respect 
to:  Matters  incidental  to  the  execution  of  any  power  vested  by  this  constitution  in  the 
Parliament  or  either  house  thereof,  or  in  the  Government  of  the  Commonwealth,  or  in  the 
Federal  Judicature,  or  in  any  department  or  officer  of  the  Commonwealth. 

^  Compare  the  Australian  Constitution,  which  expressly  provides  in  .Section  log:  When 
a  law  of  a  state  is  inconsistent  with  a  law  of  the  Commonwealth,  the  latter  shall  prevail, 
and  the  former  shall  to  the  extent  of  the  inconsistency,  be  invalid. 


io8  THE   POLICE   POWER 

All  other  conceivable  powers  of  government  not  included  in  the 
foregoing  are  delegated  to,  or,  as  some  perhaps  would  prefer  to  say, 
left  with  the  States.  The  States,  therefore,  in  our  system  possess 
an  indefinite,  though  clearly  not  an  unlimited,  residuum  of  govern- 
mental power.  This  necessarily  must  be  so  unless,  as  in  Canada,  we 
re\'erse  the  process  and  make  the  central  government  the  residuary 
legatee  of  governmental  power  and  the  States  simply  governments 
of  enumerated  powers.  It  will  not  and  can  not,  I  think,  be  disputed 
that  it  is  necessary  in  any  system  to  vest  residuary  governmental 
power,  i.e.,  authority  to  do  anything  which  has  not  been  forbidden 
expressly  or  by  implication,  in  some  department  of  the  government. 
To  maintain  the  contrary  would  be  to  assert  the  feasibility  of  enumerat- 
ing in  the  constitution  all  the  powers  which  a  government  should 
exercise.  With  us  then,  this  indefinite  residuary  power  to  govern  is 
vested  or  left  by  the  constitution  of  the  United  States  in  the  States.^ 

If  now  we  examine  this  residuum  of  governmental  power  more 
closely,  we  shall  find  that  it  includes  the  power  to  accomplish  in  part 
all  three  of  the  objects  for  which,  according  to  Mr.  Freund,  all  govern- 
ments exist.  In  the  first  place,  we  find  a  power  in  each  State  to  main- 
tain its  existence  by  putting  down  insurrection  and  rebellion  within 
its  limits,  by  laying  and  collecting  taxes,  by  taking  pri\'ate  property 
for  public  purposes,  etc.  At  the  same  time,  we  find  that  this  power 
is  not  a  complete  one,  the  State  being  compelled  by  the  constitutional 
provisions  to  rely  in  part  for  the  maintenance  of  its  existence  upon 
the  national  government.^  Again,  we  find  that  the  maintenance  of 
right,  or  justice,  i.e.,  the  administration  of  civil  and  criminal  justice, 
is  ver}^  largely  but  not  wholly  vested  in  the  States.  The  same  is  true 
with  reference  to  the  accomplishment  of  the  third  class  of  objects,  viz., 
the  promotion  of  the  public  welfare.  In  fact,  the  power  of  the  States 
in  our  system  to  promote  the  public  welfare  is  the  residuum  of  govern- 
mental power  left  after  subtracting  from  the  sum  total  of  the  States' 
residuary  powers  of  government  as  described  above,  the  powers  de- 
voted to  the  maintenance  of  existence  and  the  administration  of 
justice.  This,  otherwise  unclassified,  residuary  power  of  government, 
necessarily  of  indefinite  though  not  unlimited  extent,  has  come  to  be 
called  the  police  power.  In  other  words,  we  have  taken  the  residuary 
powers  of  government  possessed  by  the  States  in  our  system  —  the 
"residuary  sovereignty  "  of  The  Federalist  —  have  classified  and  given 
specific  names  to  certain  parts,  e.g.,  power  of  taxation,  of  eminent 
domain,  etc.,  and  then,  perhaps  for  want  of  a  better  term,  have  called 
what  is  left  "the  police  power." 

^  Of  course,  I  am  referring  here  onlj'  to  the  parts  of  the  United  States  which  are  organ- 
ized into  states.  In  the  remaining  portions  the  residuary  powers  of  government  are  of 
course  vested  by  the  constitution  in  the  Congress  of  the  United  States.  Article  IV,  Sec- 
tion 3. 

2  Constitution  of  the  United  States,  Article  I,  Sections  8  and  10 ;  .\rticle  II,  Section  2,  etc. 


THE   POLICE   POWER  109 

It  thus  appears  that  all  three  of  the  writers  whose  definitions  have 
been  discussed  are  in  part  right.  Mr.  Burgess  is  entirely  correct  in 
his  description  of  the  police  power  as  the  "convenient  repository  of 
which  our  juristic  classifications  can  find  no  other  place;"  in  fact,  if 
I  am  right  about  it,  this  must  always  be  so  until  we  overturn  our  whole 
constitutional  system.  Again,  Mr.  Hastings  is  in  part,  at  least,  right 
when  he  says  that  the  police  power  is  "indefinite  supremacy,"  only  we 
must  add  that  while  the  power  must  always  remain  "indefinite"  it 
by  no  means  follows  that  it  is  unlimited;  we  must  interpret  "indefi- 
nite" to  mean  simply  "undefined"  and  "undefinable,"  in  the  sense 
that  what  can  be  done  under  it  can  not  be  enumerated ;  that  its  limits 
can  be  ascertained  only  by  a  process  of  finding  out  what  can  not  be 
done  rather  than  by  describing  what  can  be  done.  On  the  other  hand, 
regarded  in  this  way,  the  police  power  is  not  "a  fiction,"  though  it 
certainly  is  "the  State,  regarded  as  employed  in  certain  functions." 

If,  then,  I  were  to  attempt  a  definition  of  the  police  power,  I  should 
say  that  it  is  the  unclassified,  residuary  power  of  government  vested 
by  the  constitution  of  the  United  States  in  the  respective  States.^  .... 


From  the  nature  of  the  police  power,  as  above  defined,  it  is  evident 
that  a  work  which  undertakes  to  deal  with  the  whole  of  the  police 
power  must  approach  very  closely  to  being  a  work  upon  the  whole 
subject  of  constitutional  law,  or  at  least  the  major  portion  thereof. 
We  must  ascertain  what  the  State  may  do  to  promote  the  general 
welfare ;  we  can  do  this,  if  I  am  right  about  it,  only  by  finding  out 
what  powers  are  denied  to  the  States  in  one  of  the  two  ways  I  have 
described,  and  subtracting  from  the  result  those  powers  which  have 
for  their  object  the  maintenance  of  State  existence  and  the  administra- 
tion of  justice.  To  do  this  is  to  determine,  first,  what  powers  are 
vested  by  the  constitution  exclusively  in  the  national  government, 
and  second,  what  powers  are  otherwise  denied  to  the  States.  We 
shall  therefore  have  to  furnish  a  treatise :  first,  on  the  powers  of  the 
United  States  government:  which  are  exclusive  of  the  States  and 
which  are  concurrent ;  including  therefore  a  discussion  of  the  commerce 
clause,  a  subject  large  enough  to  have  a  volume  to  itself ;  second, 
another    treatise  (or  several  of  them)   covering  all  the    limitations 

>  Compare  Mr.  Justice  Field's  statement  of  the  scope  of  the  police  power  in  Rarbier  vs. 
Connolly  (1885),  113  U.S.  27  :  "The  power  of  the  state,  sometimes  termed  its  police  power, 
to  prescribe  regulations  to  promote  the  health,  i)eace,  morals,  education  and  t;ood  order  of 
the  people,  and  to  leRislate  so  as  to  increase  the  industries  of  the  stale,  develop  its  resources 
and  add  to  its  wealth  and  prosperity."  Mr.  Justice  Field,  however,  seems  to  be  in  error 
when  he  says  that  the  fourteenth  amendment  was  not  designed  to  interfere  with  the  police 
power  of  the  states.  If  by  "interfere"  we  understand  to  limit  or  cut  down  the  scope  of 
the  police  power,  it  would  seem  that  that  was  the  very  object  of  the  amendment;  in  fact, 
any  additional  limitation  on  the  power  of  a  state  to  act  must  necessarily  reduce  its  police 
power,  i.e.,  its  residuary  governmental  power. 


no  THE  POLICE  POWER 

imposed  by  the  constitution  in  behalf  of  civil  liberty :  the  prohibition 
of  slavery  and  involuntary  servitude  in  the  thirteenth  amendment,  the 
question  what  amounts  to  a  deprivation  of  hfe,  liberty  or  property 
without  due  process  of  law,  or  the  denial  of  the  equal  protection  of 
the  laws,  under  the  fourteenth  amendment,  etc.,  etc.,  through  the 
whole  list.  Moreover,  we  shall  have  a  discussion  of  these  constitu- 
tional questions  running  throughout  the  book ;  we  shall  not  fmd  the 
discussion  of  what  amounts  to  due  process  of  law  in  one  chapter  or 
section,  the  equal  protection  of  the  laws  in  another,  etc. ;  but  rather,  a 
discussion,  for  example,  of  the  power  of  the  State  to  regulate  railway 
rates  in  a  given  manner,  all  the  constitutional  questions  involved 
being  treated  together.  That  this  arrangement  of  the  subject  has 
some  advantages  is  obvious,  especially  from  the  point  of  view  of  the 
student  of  government.  At  the  same  time  the  defects  of  the  method 
are  equally  obvious :  in  the  course  of  each  discussion  many  constitu- 
tional provisions  are  involved  and  nowhere  does  one  find  a  complete, 
connected  statement  of  just  what,  for  example,  due  process  of  law  is, 
not  with  reference  to  one  law  but  as  a  whole.  Moreover,  if  we  adopt 
Mr.  Freund's  wider  definition,  there  is  added  to  the  already  vast  field 
a  discussion  of  the  commerce  clause,  not  from  the  point  of  view  of 
finding  out  what  regulations  of  commerce  are  denied  to  the  States, 
but  from  that  of  ascertaining  what  Congress  can  do  for  the  promotion 
of  the  general  welfare  by  virtue  of  its  power  under  this  clause.  Logi- 
cally, also,  we  should  omit  to  discuss  the  question  of  whether  there 
could  be  regulations  of  inter-state  commerce  by  Congress  which  had 
for  their  objects  not  the  promotion  of  the  public  welfare  but,  say, 
the  maintenance  of  national  existence.  The  same  thing  is  true  of  any 
other  power  vested  in  the  Congress  of  the  United  States ;  under  Mr. 
Freund's  definition  it  must  be  discussed  in  so  far  and  only  in  so  far  as  it 
may  be  exerted  for  the  promotion  of  the  public  welfare.  While  not 
denying,  therefore,  the  value  of  treatises  on  the  police  powder  as  a 
whole,  I  am  inclined  to  think  that  a  series  of  treatises  on  the  commerce 
clause,  the  thirteenth  amendment,  the  fourteenth  amendment,  etc., 
will  be  of  still  greater  utility  for  the  student  of  constitutional  law. 
Take  a  conciete  case:  a  State  enacts  a  law  regulating  the  charges, 
say  of  grain  elevators  (as  in  the  case  of  Munn  vs.  Illinois  0-  Is  the  law 
constitutional  ?  It  is  unless  the  power  to  act  is  denied  to  the  State. 
The  constitutional  lawyer  therefore  runs  over  in  his  mind  one  by  one, 
each  one  being  a  complete  problem  by  itself,  the  various  possibilities : 
is  the  exercise  of  this  power  vested  exclusively  in  the  United  States 
government?  If  not,  does  it  deprive  any  one  of  liberty  or  property 
without  due  process  of  law,  or  deny  the  equal  protection  of  the  laws, 
or  do  any  other  forbidden  thing?  If  it  does  none  of  these  things,  then 
it  is  a  valid  police  law. 

1  (1S76)  94  U.S.  113. 


THE   POLICE   POWER  iii 

Thus  far  the  problem  has  been  treated  as  one  arising  purely 
under  the  constitution  of  the  United  States.  The  constitutional 
lawyer's  task  is,  however,  not  yet  completed ;  he  must  reckon  with 
the  State  constitution.  The  people  of  the  State  have  not  seen  fit 
to  delegate  all  the  residuary  powers  of  government  left  in  their  hands 
by  the  national  constitution  to  their  representati\'es  in  the  State 
government,  but  have,  wisely  or  unwisely,  deemed  it  necessary  to 
impose  additional  constitutional  limitations.  To  ascertain,  then, 
the  extent  of  the  power  which  the  State  government  may  exert  for 
the  promotion  of  the  welfare  of  the  inhabitants  of  the  State,  we  must 
still  farther  reduce  our  residuum  of  governmental  power,  which  we 
have  above  called  the  police  power,  by  subtracting  this  farther  denial 
of  power ;  what  we  have  left  is  —  still  unclassified,  residuary  power  to 
govern  —  the  police  power  as  it  actually  exists  in  any  particular  State. 
Here  again  the  desired  result  is  attained  by  determining  the  scope  of 
what  is  to  be  subtracted :  w^hatever  is  not  denied,  is  granted. 

It  remains  now,  in  closing,  to  point  out  that  this  method  of  treating 
the  problem  does  not  necessarily,  and  should  not,  lead  to  any  narrower 
view  of  the  powers  of  the  States  to  promote  the  general  welfare  or 
—  what  amounts  to  the  same  thing  —  any  undue  widening  of  the  scope 
of  the  constitutional  limitations.  Our  courts  should  not  forget  —  as 
apparently  some  of  our  State  courts  too  often  do  —  that  as  a  result  of 
the  distribution  of  governmental  power  in  our  system,  our  states  are 
the  residuary  legatees  of  governmental  authority;  that  they  are  the 
bodies  vested  with  power  and  authority  to  meet  the  changing  needs 
of  society,  as  industry  and  commerce  develop  and  new  forms  of  busi- 
ness and  industrial  organization  grow  up,  by  appropriate  changes  in 
the  law :  perhaps  by  regulating  in  new  ways  activities  of  the  individual 
which  in  the  past  have  been  subjected  to  some  regulation,  or  even,  as  in 
Munn  vs.  Illinois,  subjecting  to  regulation,  in  the  interests  of  society,  as 
activities  which  at  an  earlier  period  did  not  need  such  regulation. 
Nor,  as  the  late  Mr.  Thayer  so  often  and  so  strenuously  insisted,^ 
should  they  forget  that  they  are  not  the  primary  but  only  the  secondary 
guardians  of  constitutional  liberty.  Only  when  an  individual  who 
thinks  that  his  rights  are  being  infringed  chooses  to  call  upon  them  for 
aid  do  they  get  an  opportunity  to  pass  upon  the  constitutionality  of 
the  statutes  passed  by  the  legislature,  and  it  may  be  that  this  will  not 
be  done  until  many  years  after  the  passage  of  the  law.-  From  this 
results  that  fundamental  principle  of  our  constitutional  law  that  a 
statute  duly  passed  by  the  legislative  branch  of  the  government  is 
not  to  be  treated  as  null  and  void  because  unconstitutional  unless  the 

1  Thayer,  Origin  and  Scope  of  the  American  Doctrine  of  Constitutional  Law,  pp.  4-12. 

2  .'\s  in  the  case  of  the  United  States  Bank,  the  validity  of  the  charter  to  which  did  not 
come  before  the  Supreme  Court  for  decision  until  after  the  first  charter  had  e.xpired  and 
the  second  had  been  granted.     McCuUoch  vs.  Maryland  (iSiy)  4  Wheat.  316. 


112  THE   POLICE  POWER 

court  feel  a  clear  and  strong  conviction  that  it  violates  one  of  the  pro- 
visions of  the  constitution  in  behalf  of  the  liberty  of  the  individual.^ 
When,  therefore,  a  statute  is  challenged  as  unconstitutional,  the  burden 
of  proof  is  upon  the  shoulders  of  the  one  who  makes  the  challenge; 
the  State  need  not  prove  its  power  to  act ;  the  individual  must  satisfy 
the  court  of  the  denial  of  power  to  the  State.  It  is  especially  desirable 
that  in  dealing  with  that  vague  phrase,  "due  process  of  law,"  the 
courts  should  bear  in  mind  these  fundamental  principles.  Originating 
in  England,  as  the  phrase  did,  it  was  used  there  to  place  limitations 
not  upon  the  legislative  but  upon  the  executive  branch  of  the  govern- 
ment, and  therefore  had  a  very  definite  meaning,  viz.,  that  in  dealing 
with  the  individual  the  executive  department  should  proceed  only  in 
accordance  with  the  principles  of  the  common  law  or  of  statutes  duly 
enacted  by  the  parliament.  Due  process  of  law  there  was,  and  is  to- 
day, whatever  parliament  enacts.  Carried  over  into  our  system  as  a 
limitation  upon  the  legislative  branch  of  the  government,  the  phrase 
at  once  becomes  vague  and  uncertain.  As  we  all  know,  as  interpreted 
by  the  Supreme  Court  it  amounts  in  substance  to  saying  that  the 
government  must  not  act  unreasonably ;  that  its  laws  shall  not  be  arbi- 
trary or  in  violation  of  the  fundamental  principles  of  liberty  and 
justice.^  In  applying  this  test  the  Supreme  Court  of  the  United 
States  has,  I  think,  on  the  whole  come  very  near  to  following  the 
principle  suggested  by  Mr.  Justice  Holmes,  now  of  the  Supreme 
Court  itself,  but  at  that  time  writing  as  a  dissenting  member  of  the 
Supreme  Court  of  Massachusetts.  In  discussing  the  validity  of  a 
law"  regulating  relations  between  employer  and  employee,  which  the 
majority  of  the  court  were  holding  to  be  unconstitutional,  he  said: 

If  I  assume  .  .  .  that,  speaking  as  a  political  economist,  I  should  agree 
in  condemning  the  law,  still  I  should  not  be  willing  to  think  myself  authorized 
to  overturn  legislation  on  that  ground,  unless  I  thought  that  an  honest 
difference  of  opinion  was  impossible,  or  pretty  nearly  so. 

It  is  in  such  cases  as  Munn  vs.  Illinois,^  Davidson  us.  New  Orleans,'* 
Hurtado  vs.  California,^  Holden  vs.  Hardy,®  and  many  others  which 
might  be  cited,  that  this  attitude  of  the  court  clearly  appears.  Occa- 
sional lapses,  such  as,  for  example,  that  in  Norwood  vs.  Baker,'^  are 
sooner  or  later,  if  not  expressly,  at  least  in  effect,  overruled.*     As  Mr. 

1  As  Mr.  Thayer  points  out,  when  the  question  is  one  of  the  allotment  of  power  by  the 
national  constitution  between  the  national  government  and  the  states,  and  the  enactment 
in  question  is  one  by  a  state  legislature,  a  different  principle  may  well  govern  and  perhaps 
has  governed  the  court  in  settling  the  constitutional  question.  Thayer,  op.  cit.,  12-30; 
Thaver,  Cases  on  Constitutional  Law,  pp.  156—157. 

2'Hurtado  vs.  California  (1884)  no  U.S.  516;    Holden  vs.  Hardy  (1898)  169  U.S.  366. 

3  (1876)  94  U.S.  113.  *  (1877)  96  U.S.  97- 

'  (1884)  no  U.S.  516.  6  (1898)  169  U.S  366. 

'  (1898)  172  U.S.  269. 

8  (1898)  French  vs.  Barber  Asphalt  Paving  Co.  (1901)  181  U.S.  324. 


THE  POLICE  POWER  113 

Justice  B^o^^^l  said  in  Holden  vs.  Hardy:  "The  constitution  of  ths 
United  States,  which  is  necessarily  and  to  a  large  extent  inflexible 
and  exceedingly  difficult  of  amendment,  should  not  be  so  construed 
as  to  deprive  the  States  of  the  power  so  to  amend  their  laws  as  to  make 
them  conform  to  the  wishes  of  their  citizens  as  they  may  deem  best 
for  the  public  welfare  without  bringing  them  into  conflict  with  the 
supreme  law  of  the  land.  .  .  .  We  concur  in  the  following  observations 
of  the  Supreme  Court  of  Utah  in  this  connection:  '.  .  .  Though 
reasonable  doubts  may  exist  as  to  the  power  of  the  legislature  to  pass  a 
law,  or  as  to  whether  the  law  is  calculated  or  adapted  to  promote  the 
health,  safety  or  comfort  of  the  people,  or  to  secure  good  order,  or 
promote  the  general  welfare,  we  must  resolve  them  in  favor  of  the 
right  of  that  department  of  the  government.' " 


THE    POLICE    POWER,    A   PRODUCT    OF   THE    RULE 

OF   REASON 

By  the  Hon.  George  W.  Wickersham,  Former  United  States 
Attorney-General 

(From  the  Harvard  Law  Review,  February,  1914) 

A  well-known  writer  on  the  police  power  calls  it  "The  law  of 
overruling  necessity,"  ^  and  he  adds: 

The  law  of  necessity  has  been  stated  to  be  an  exception  to  all  human 
ordinances  and  constitutions,  yet  has  been  frequently  decided  to  be  subject 
to  the  law  of  reason,  and  subject  to  the  control  of  the  courts. 

It  would  be  more  accurate  to  say  that  the  entire  doctrine  of  the 
police  power  of  the  states  is  the  creation  of  the  courts,  evolved  from 
the  necessity  of  harmonizing  provisions  of  written  constitutions 
of  states  and  nation  with  the  imperative  needs  of  ci\dlized  society. 
It  is  the  result  of  the  application  of  the  "rule  of  reason"  in  the  con- 
struction of  written  constitutions.  For  the  absence  of  exact  defini- 
tions of  such  words  as  "to  deprive,"  "liberty,"  "property,"  "due 
process  of  law,"  "equal  protection  of  the  laws,"  "privileges  and  im- 
munities," and  the  like,  in  constitutions,^  left  room  for  but  one  con- 
clusion, to  paraphrase  the  language  of  the  Chief  Justice  in  the  Standard 
Oil  Case,'  which  is,  that  it  was  exjjressly  designed  not  to  unduly  limit 
or  extend  the  application  of  the  constitution  by  precise  definition,  but, 
while  fixing  a  standard,  that  is,  by  declaring  the  ulterior  boundaries 

'  Prentice,  W.  P.,  The  Police  Power,  p.  6 

^  See  Francis  J.  Svvayze  on  the  Fourteenth  Amendment,  26  Ilarv.  L.  Rev.  i. 

'  Standard  Oil  Co.  vs.  United  States,  221  U.S.  i,  63. 


114  THE  POLICE   POWER 

which  could  not  be  transgressed  with  impunity,  to  leave  it  to  be  de- 
termined by  the  light  of  reason,  guided  by  the  principles  of  law,  and 
the  duty  to  apply  and  enforce  the  public  policy  embodied  in  the  consti- 
tution in  every  given  case,  whether  any  particular  act  of  a  legislative 
body  was,  within  the  contemplation  of  the  constitution,  permitted  or 
forbidden.  That  is  to  say,  the  rule  of  construction,  to  be  applied 
to  constitutions  as  w'ell  as  to  statutes,  must  be  the  spirit  and  intent 
of  the  people  or  their  representatives,  and  therefore  the  prohibition 
of  a  constitution  must  be  held  to  extend  to  acts  "even  if  not  within 
the  literal  terms"  of  the  constitution,  "if  they  are  within  its  spirit, 
because  done  with  an  intent  to  bring  about  the  harmful  results  which 
it  was  the  purpose  of  the"  constitution  to  prohibit.^  And  on  the 
other  hand,  that  such  prohibition  must  not  be  held  to  extend  to  acts 
which,  while  within  the  literal  terms  of  a  constitutional  prohibition, 
could  not  have  been  intended  by  the  people  to  be  prohibited  to  legisla- 
tive competence,  because  of  the  obvious  injury  to  public  interests 
which  would  result  from  such  prohibition. 

The  inhabitants  of  the  thirteen  original  states  of  our  federal  union, 
with  common  accord,  embodied  their  conceptions  of  proper  govern- 
mental organization  in  written  constitutions,  carefully  devised  to 
insure  the  expression  and  limitations  of  the  powers  of  government,  and 
the  distribution  of  those  powers  among  three  distinct,  although 
coordinated,  branches.  "The  theory  of  our  government,  state  and 
nation,  is  opposed  to  the  deposit  of  unlimited  power  anywhere."  ^ 

In  almost  every  one  of  these  constitutions  there  was  embodied  a  bill 
of  rights  —  an  enumeration  of  the  rights  which  the  people  intended  to 
secure  to  every  individual  of  the  community,  for  his  protection  in  his 
life,  his  liberty,  his  right  to  labor  in  his  own  way,  and  the  protection 
of  the  property  which  should  be  the  fruit  of  his  labor.  These  provi- 
sions, more  or  less  detailed  in  the  constitutions  of  the  different  states, 
were  designed  to  restrict  and  control  the  activities  of  the  legislative 
and  executive  branches  of  the  government,  and  thus  to  secure  the 
blessings  of  civil  liberty  to  the  people  of  those  states  and  their  posterity. 

"Civil  liberty,"  said  Judge  Sharswood,  "the  great  end  of  all  human 
society  and  government,  is  that  state  in  which  each  individual  has  the 
power  to  pursue  his  own  happiness  according  to  his  own  views  of  his 
interest,  and  the  dictates  of  his  conscience,  unrestrained  except  by 
equal,  just  and  impartial  laws."  ' 


The  fact  that  the  Constitution  of  the  United  States,  as  originally 
framed,  contained  no  bill  of  rights,  was  the  subject  of  serious  com- 

1  United  States  vs.  American  Tobacco  Co.,  221  U.S.  106,  177. 
*  Loan  Association  vs.  Topeka,  20  Wall.  (U.S.)  655. 
8  I  Sharswood's  Blackstone,  127,  note  8. 


THE  POLICE   POWER  115 

plaint,  and  the  first  Congress,  on  September  25,  1789,  adopted  and 
proposed  to  the  legislatures  of  the  several  states  ten  amendments, 
which  were  ratified  between  that  date  and  December  15,  1791.  These 
amendments  embodied,  as  restrictions  upon  the  action  of  the  federal 
government,  many  of  the  provisions  familiar  to  all  the  state  constitu- 
tions, imposing  restraints  upon  action  of  the  state  governments. 

It  seems  incredible  that  any  intelligent  student  of  government  should 
have  questioned  the  power  and  duty  devolved  upon  the  judiciary  by 
these  constitutions  to  inquire,  when  a  question  arose  in  a  case  coming 
before  the  courts,  whether  or  not  an  act  of  the  legislature,  or  of  the 
Congress,  violated  some  express  provision  of  fundamental  law.  Not 
only  was  such  a  duty  the  necessary  result  of  the  establishment  of  con- 
stitutions purporting  to  regulate  or  circumscribe  legislative  action, 
and  granting  to  the  courts  exclusive  judicial  power,  but  the  constitu- 
tions of  four  of  the  New  England  states  contained  express  provisions 
authorizing  the  legislature,  or  the  governor,  for  their  guidance  in 
keeping  within  the  constitutional  bounds  applicable  to  their  respective 
functions,  to  require  the  opinions  of  the  justices  of  the  highest  court 
of  the  state  upon  important  questions  of  law,  and  upon  solemn  occa- 


sions 


No  such  provision,  howe\-er,  being  found  in  the  Constitution  of  the 
United  States,  the  justices  of  the  Supreme  Court  from  the  very  begin- 
ning declined  to  answer  questions  at  the  request  of  the  executive,  hold- 
ing that  the  exercise  of  judicial  power  required  them  merely  to  decide 
questions  or  controversies  coming  before  them  in  the  course  of  the 
ordinary  administration  of  justice.-  But  the  court  also  held  that  when 
such  questions  arose  in  such  cases  or  controversies,  they  would  not 
hesitate  to  measure  a  law  invoked  in  support  of  any  given  act  with 
the  constitution  of  the  state  or  nation  from  which  the  power  to  legislate 
was  derived,  or  by  which  it  was  qualified  or  restrained,  and  to  declare 
it  to  be  invalid  if  it  exceeded  the  limits  expressed  in  such  grant  or  regu- 
lation.' 

The  opinion  of  Chief  Justice  Marshall  in  Marbury  v.  Madison, 
the  case  referred  to,  for  a  century  has  been  followed  by  the  Supreme 
Court.  Its  reasoning  has  never  been  answered.  The  courts  of  the 
states  and  of  the  nation  ha\'e  uniformly  recognized  and  discharged  the 

'See  Const,  of  Mass.  1780,  Chapter  3,  Article  2;  Const,  of  Maine,  1819,  Article  6; 
Const,  of  New  Hampshire,  1902,  .\rticle  73;    Const,  of  Rhode  Island,  i8.}2,  Article  10. 

Similar  provisions  were  embodied  in  the  Const,  of  South  Dakota,  1889,  Article  5,  Sec- 
tion 13,  and  that  of  ^Missouri  prior  to  1875  contained  a  like  provision.  See  note  to  i  Thayer's 
Cases  on  Const.  Law,  p.  175. 

By  the  Supreme  Court  .\ct  (1875)  of  Canada,  as  amended  by  54  and  55  Vict.,  Chapter  25, 
the  Governor-General  in  Council,  and  in  some  cases  the  Senate  or  the  House  of  Represen- 
tatives of  the  Dominion  Parliament,  are  empowered  to  call  upon  the  justices  of  the  Supreme 
Court  for  opinions  on  questions  of  law. 

2  Marshall,  Life  of  Washington,  Vol.  V,  p.  441 ;  Sparks,  Life  of  Washington,  Vol.  X, 
P-  359- 

3  Marbury  vs.  Madison,  i  Cranch  (U.S.)  137,  177. 


ii6  THE  POLICE   POWER 

duty  of  passing  upon  the  constitutionality  of  acts  of  state  or  national 
legislatures  respectively,  when  they  arose  in  cases  coming  before  them. 
In  no  other  way  could  the  mandates  of  constitutions  have  been  made 
effective ;  in  no  other  way,  certainly,  could  the  supremacy  of  the 
federal  Constitution  have  been  maintained  —  a  supremacy  which  was 
declared  in  the  language  of  the  Sixth  Article : 

This  Constitution,  and  the  Laws  of  the  United  States  which  shall  be 
made  in  pursuance  thereof ;  and  all  treaties  made,  or  which  shall  be  made, 
under  the  authority  of  the  United  States,  shall  be  the  supreme  law  of  the 
land;  and  the  judges  in  every  state  shall  be  bound  thereby,  anything  in 
the  constitution  or  laws  of  any  state  to  the  contrary  notwithstanding. 

The  existence  of  this  power  and  duty  was  universally  accepted  ^ 
despite  the  partisan  outbreak  of  Mr.  Jefferson  after  the  decision  in 
Chisholm  vs.  Georgia  in  1793,  and  by  Andrew  Jackson  a  quarter  of 
a  century  later,  until  very  recent  times,  when,  for  similar  reasons,  — 
namely,  because  the  construction  put  upon  constitutional  provisions 
by  the  courts  offended  a  radical  faction  of  the  community,  —  a  renewed 
and  even  more  violent  assault  was  made  upon  the  exercise  of  this 
judicial  power. 

With  great  subtlety,  but  with  singular  inaccuracy,  the  most  con- 
spicuous leader  of  this  attack  has  characterized  the  action  of  the 
judiciary  in  holding  state  statutes  unconstitutional,  to  be  the  perform- 
ance, not  of  the  ordinary  judicial  function,  but  of  "the  function 
which  no  other  judge  in  the  world  performs  of  declaring  whether 
or  not  the  people  have  the  right  to  make  laws  for  themselves  on  matters 
which  they  deem  of  vital  concern."  ^ 

The  statement  is  wide  of  the  fact.  In  nearly  every  one,  if  not  all, 
of  the  English  colonies  whose  governments  are  embodied  in  written 
constitutions  by  which  a  separation  is  effected  between  the  executive, 
legislative,  and  judicial  functions,  the  courts  of  the  colonies  exercise 
power  to  pass  upon  the  constitutionality  of  acts  of  the  legislature,  and 
their  decisions  are,  under  certain  conditions,  subject  to  review  by  the 
Judicial  Committee  of  the  Privy  Council  in  England. 

Thus,  in  Buckley  vs.  Ed\vards,  L.  R.  [1892]  A.  C.  3S7,  the  Privy 
Council  held  an  act  of  the  legislature  of  New  Zealand  to  be  invalid 
because  unauthorized  by  the  constitution  of  that  colony. 

In  Webb  v.  Outrim  [1907]  App.  Cases,  81,  on  appeal  to  the  Privy 
Council  from  a  decision  of  the  Supreme  Court  of  Victoria,  the  powers 

1  Mr.  C.  A.  Beard,  in  an  article  entitled  "The  Supreme  Court,  Usurper  or  Grantee," 
in  the  Political  Science  Quarterly,  March,  1912,  p.  i,  has  amply  demonstrated  the  fact  that 
the  framers  of  the  federal  Constitution  whose  views  on  the  subject  are  recorded  recognized 
that  the  necessary  effect  of  its  provisions  would  be  to  empower  the  judiciary  to  declare 
void  any  acts  of  Congress  or  of  state  legislatures  which  would  violate  the  limitations  im- 
posed by  the  Constitution. 

2  Roosevelt,  Theodore,  Judges  and  Progress,  The  Outlook,  Jan.  6,  1912. 


THE   POLICE  POWER  117 

of  that  colony  under  the  constitution  of  the  Commonwealth  of  Aus- 
tralia were  considered,  and  it  was  held  that  the  Parliament  of  the  Com- 
monwealth had  no  power  to  take  away  from  the  colony  the  right  to 
appeal  to  the  King  in  Council  existing  in  that  case;  and  the  power 
of  the  colony,  under  the  constitution  to  impose  an  income  tax,  even  on 
the  salary  of  an  officer  of  the  Commonwealth,  was  considered  and 
determined. 

Very  recently  the  Privy  Council  in  England,  on  appeal  from  the 
Supreme  Court  of  Canada  from  opinions  given  by  it  in  answer  to 
questions  submitted  by  the  Governor-General  in  Council  concerning 
the  power  of  the  Dominion  to  enact  a  law  relating  to  solemnization 
of  matrimony,  gave  authoritative  construction  to  certain  sections 
of  the  constitution  of  the  Dominion  of  Canada  (The  British  North 
America  Act,  1867,  Sects.  91  and  92),  and  defined  the  limits  of  Do- 
minion control  over  provincial  legislation  on  the  subject  of  marriage.^ 

The  same  power  is  constantly  exercised  by  the  Supreme  Court  of 
Canada  -  and  by  the  High  Court  of  Australia.^ 

Mr.  Herbert  Pope,  in  a  recent  article,^  explains,  in  an  able  review  of 
its  Parliamentary  history,  why  in  England  no  court  exercises  the  power 
to  declare  an  act  of  Parliament  unconstitutional,  by  showing  that  not 
merely  is  there  no  written  constitution  of  Great  Britain,  but  that 
Parliament  itself  has  always  exercised  judicial  powers,  and  has  been 
and  continues  to  be  the  highest  court  of  the  realm.  But  under  the 
American  state  and  federal  constitutions  the  legislature  possesses  no 
judicial  powers,  and  as  Mr.  Pope  says,  "The  meaning  of  the  constitu- 
tion as  law  could  be  determined  only  by  the  judgment  of  some  court, 
and  Congress,  under  the  Constitution,  is  not  a  court." 

In  the  construction  of  constitutional  provisions  made  for  the  pro- 
tection of  individuals  the  courts  early  recognized  what  Mr.  Justice 
Holmes  so  well  expressed  in  a  comparatively  recent  case,  that : 

In  modern  societies  every  part  is  related  so  organically  to  every  other 
that  what  affects  any  portion  must  be  felt  more  or  less  by  all  the  rest. 
Therefore,  unless  everything  is  to  be  forbidden  and  legislation  is  to  come  to 
a  stop,  it  is  not  enough  to  show  that  in  the  working  of  a  statute  there  is 
some  tendency  logically  discernible  to  interfere  with  commerce  or  existing 
contracts.  Practical  lines  have  to  be  drawn  and  distinctions  of  degree  must 
be  made.^ 

In  the  year  1835,  Chancellor  Walworth,  in  deciding  a  case  in  the  New 
York  Court  of  Chancery,  said : 

'  See  L.  R.  App.  Cases  [1912]  p.  880. 

2  Todd,  Parliamentary  Government  in  the  Colonies,  pp.  220,  363-366. 
'See  Huddart  Parker  &  Co.  vs.  Moorehead,  8  Comw.  L.  R.  330;    The  King  vs.  Com- 
missioners, ibid.  p.  419. 

See  also  Moore,  Constitution  of  the  Commonwealth,  2  ed.,  Part  6,  chap.  i. 

■•  27  Harvard  Law  Review,  45. 

'  Diamond  Glue  Co.  vs.  U.S.  Glue  Co.,  178  U.S.  611,  616. 


ii8  THE   POLICE   POWER 

But  in  a  stale  which  is  governed  by  a  written  constitution  like  ours,  if 
the  legislature  should  so  far  forget  its  duty,  and  the  natural  rights  of  an 
individual,  as  to  take  his  private  property  and  transfer  it  to  another,  where 
there  was  no  foundation  for  a  pretense  that  the  pubHc  was  to  be  benefited 
thereby,  I  should  not  hesitate  to  declare  that  such  an  abuse  of  the  right 
of  eminent  domain  was  an  infringement  of  the  spirit  of  the  constitution ; 
and  therefore  not  within  the  general  powers  delegated  by  the  people  to  the 
legislature.  « 

But  while  I  deny  to  the  legislative  power  the  right  thus  to  take  private 
property  for  the  mere  purpose  of  transmitting  it  to  another,  I  admit  that 
the  two  branches  of  the  legislature,  subject  only  to  the  qualified  veto  of 
the  executive,  are  the  sole  judges  as  to  the  expediency  of  making  police 
regulations  interfering  with  the  natural  rights  of  our  citizens,  which  regu- 
lations are  not  prohibited  by  the  constitution.^ 

In  the  great  case  of  Commonwealth  v.  Alger,  7  Cush.  (Mass.) 
53,  Chief  Justice  Shaw,  with  that  masterful  grasp  on  principles 
of  law  and  government  that  alwa}-s  characterized  him,  analyzed 
and  expounded  the  relation  between  constitutional  pro^•isions, 
adopted  for  the  preservation  of  induidual  rights,  and  the  powers 
of  government  by  which  those  rights  must  be  qualified,  in  order 
that,  without  impairment  of  the  substantial  and  essential  rights  of 
the  individual  in  a  free  state,  government  may  nevertheless  go 
forward  and  discharge  its  necessary  functions  for  the  benefit  of 
society  at  large  —  the  commonwealth.     He  said : 

We  think  it  is  a  settled  principle,  growing  out  of  the  nature  of  well- 
ordered  civil  society,  that  every  holder  of  property,  however  absolute 
and  unquahfied  may  be  his  title,  holds  it  under  the  implied  liability  that 
his  use  of  it  may  be  so  regulated  that  it  shall  not  be  injurious  to  the  equal 
enjoyment  of  others  having  an  equal  right  to  the  enjoyment  of  their  property, 
nor  injurious  to  the  rights  of  the  community.  .  .  .  Rights  of  property, 
Uke  aU  other  social  and  conventional  rights,  are  subject  to  such  reasonable 
limitations  in  their  enjo^Tnent  as  shall  prevent  them  from  being  injurious, 
and  to  such  reasonable  restraints  and  regulations  established  by  law  as  the 
legislature,  under  the  governing  and  controUing  power  vested  in  them  by 
the  constitution,  may  think  necessary  and  expecUent. 

This  is  very  different  from  the  right  of  eminent  domain,  the  right  of  a 
government  to  take  and  appropriate  private  property  to  public  use,  when- 
ever the  pubUc  exigency  requires  it ;  which  can  be  done  only  on  condition 
of  providing  a  reasonable  compensation  therefor.  The  power  we  aUude  to 
is  rather  the  poUce  power,  the  power  vested  in  the  legislature  by  the  con- 
stitution, to  make,  ordain,  and  establish  all  manner  of  wholesome  and 
reasonable  laws,  statutes,  and  ordinances,  either  with  penalties  or  without, 
not  repugnant  to  the  constitution,  as  they  shall  judge  to  be  for  the  good 
and  welfare  of  the  commonwealth,  and  of  the  subjects  of  the  same. 

He  added : 

1  Varick  vs.  Smith,  5  Paige's  Chancery,  136,  159. 


THE   POLICE   POWER  119 

It  is  much  easier  to  perceive  and  realize  the  existence  and  sources  of 
this  power,  than  to  mark  its  boundaries,  or  prescribe  limits  to  its  exercise. 
There  are  many  cases  in  which  such  a  power  is  exercised  by  all  well-ordered 
governments,  and  where  its  fitness  is  so  obvious,  that  all  well-regidated 
minds  will  regard  it  as  reasonable.  .  .  .     (pp.  84-86) 

The  limits  of  the  case  under  consideration  did  not  lead  the  Chief 
Justice  to  a  discussion  of  the  many  other  cases  where  the  fitness  of 
the  exercise  of  such  power  is  not  so  obvious  that  its  reasonableness 
would  be  agreed  to  by  "all  well-regulated  minds." 

In  the  year  1837  the  same  principle  was  recognized  by  the  Supreme 
Court  of  the  United  States,  in  a  case  involving  the  constitutionality  of 
a  state  statute  requiring  the  master  of  every  vessel  bringing  immigrants 
from  any  other  country,  to  report  to  the  authorities  of  the  state  in 
which  the  port  of  arrival  was  situated  certain  facts  concerning  such 
immigrants.  It  was  claimed  that  this  statute  amounted  to  a  regula- 
tion of  foreign  commerce,  and  therefore  w'as  invalid,  because  in  conflict 
wdth  the  power  over  that  subject  conferred  upon  Congress  by  the 
federal  Constitution.  In  holding  that  it  did  not  so  conflict,  the  court, 
by  Justice  Barbour,  affirmed 

That  a  state  has  the  same  undeniable  and  unlimited  jurisdiction  over  aU 
persons  and  things  within  its  territorial  limits,  as  any  foreign  nation,  where 
that  jurisdiction  is  not  surrendered  or  restrained  by  the  Constitution  of 
the  United  States.  That,  by  virtue  of  this,  it  is  not  only  the  right,  but 
the  bounden  and  solemn  duty,  of  a  state  to  advance  the  safety,  happiness, 
and  prosperity  of  its  people,  and  to  provide  for  its  general  welfare,  by  any 
and  every  act  of  legislation,  which  it  may  deem  to  be  conducive  to  these 
ends,  where  the  power  over  the  particular  subject,  or  the  manner  of  its 
exercise,  is  not  surrendered  or  restrained,  in  the  manner  just  stated.  That 
all  those  powers  which  relate  to  merely  municipal  legislation,  or  what  may, 
perhaps,  more  properly  be  called  internal  police,  are  not  thus  surrendered 
or  restrained ;  and  that,  consequently,  in  relation  to  these,  the  authority 
of  a  state  is  complete,  unquaUfied,  and  exclusive.^ 

In  Prigg  vs.  Commonwealth,  16  Peters  (U.  S.)  539,  in  holding  un- 
constitutional and  void  an  act  of  the  legislature  of  Pennsylvania, 
purporting  to  punish  as  a  public  offense  against  the  state  the  act  of 
seizing  and  removing  a  slave  by  his  master,  which  the  court  held 
the  Constitution  of  the  United  States  was  designed  to  justify  and  up- 
hold, Mr.  Justice  Story  said  : 

To  guard,  however,  against  any  possible  misconstruction  of  our  views, 
it  is  proper  to  state,  that  we  are  by  no  means  to  be  understood  in  any 
manner  whatsoever  to  doubt  or  to  interfere  with  the  police  power  belonging 
to  the  states,  in  virtue  of   their  general  sovereignty.     That  police  power  | 
extends  over  all  subjects  within  the  territorial  limits  of  the  states,  and  has 

1  City  of  New  York  vs.  Miln,  1 1  Peters  (U.S.)  102,  139. 


I20  THE   POLICE   POWER 

never  been  conceded  to  the  United  States.  It  is  wholly  distinguishable 
from  the  right  and  duty  secured  by  the  provision  now  under  consideration, 
which  is  exclusively  derived  from  and  secured  by  the  Constitution  of  the 
United  States,  and  owes  its  whole  efficacy  thereto.  We  entertain  no  doubt 
whatsoever  that  the  states,  in  virtue  of  their  general  police  power,  possess 
full  jurisdiction  to  arrest  and  restrain  runaway  slaves,  and  remove  them 
from  their  borders,  and  otherwise  to  secure  themselves  against  their  depre- 
dations and  evil  example,  as  they  certainly  may  do  in  cases  of  idlers,  vaga- 
bonds, and  paupers.  The  rights  of  the  owners  of  fugitive  slaves  are  in  no 
just  sense  interfered  with  or  regulated  by  such  a  course  ;  and  in  many  cases 
the  operations  of  this  police  power,  although  designed  generally  for  other 
purposes,  for  the  protection,  safety,  and  peace  of  the  state,  may  essentially 
promote  and  aid  the  interests  of  the  owners.  But  such  regulations  can 
never  be  permitted  to  interfere  with  or  to  obstruct  the  just  rights  of  the 
owner  to  reclaim  his  slave,  derived  from  the  Constitution  of  the  United 
States,  or  with  the  remedies  prescribed  by  Congress  to  aid  and  enforce  the 
same.     (p.  625) 

In  giving  scope  to  the  exercise  of  this  so-called  police  power  the 
Supreme  Judicial  Court  of  Massachusetts  has  been,  perhaps,  more 
scrupulously  regardful  of  the  limitations  upon  its  exercise  imposed  by 
constitutional  restrictions  than  the  courts  of  any  other  state.  Chief 
Justice  Knowlton,  in  the  case  of  Commonwealth  vs.  Strauss,  191  Mass. 
545,  550,  defined  this  power  as  including  "the  right  to  legislate  in  the 
interest  of  the  public  health,  the  public  safety,  and  the  public  morals. 
If  the  power  is  to  be  held  within  the  limits  of  the  field  thus  defined," 
he  said,  "the  words  should  be  interpreted  broadly  and  liberally.  If 
we  are  to  include  in  the  definition,  as  many  judges  have  done,  the 
right  to  legislate  for  the  public  welfare,  this  term  should  be  defined  with 
some  strictness  so  as  not  to  include  everything  that  might  be  enacted 
on  grounds  of  mere  expediency." 

The  legislature  of  Massachusetts  has  also  exhibited  a  commendable 
desire  to  restrain  its  action  within  the  boundaries  of  constitutional 
power,  by  frequently  requesting  the  opinions  of  the  justices  of  the 
Supreme  Court  as  to  the  constitutionality  of  measures  proposed  to  be 
justified  under  the  exercise  of  the  police  power,  and  in  every  instance,  so 
far  as  the  writer  has  been  able  to  ascertain,  the  legislature  has  ac- 
quiesced in  the  expression  of  opinion  thus  invoked.^ 

The  adoption  of  the  Thirteenth  and  Fourteenth  Amendments  to 
the  United  States  Constitution,  particularly  the  provision  forbidding 
states  to  make  laws  which  shall  abridge  the  privileges  or  immunities  of 
citizens  of  the  United  States,  deprive  any  person  of  life,  liberty,  or 
property  without  due  process  of  law,  or  deny  to  any  person  within  the 
jurisdiction  the  equal  protection  of  the  laws,  forced  upon  the  Supreme 
Court  of  the  United  States  a  more  careful  and   comprehensive  con- 

'  See  200  Mass.  619,  622  ;   211  Mass.  605  ;   207  Mass.  601 ;  ibid.  606 ;   211  Mass.  618. 


THE   POLICE   POWER  121 

sideration  of  the  limits  of  the  police  power  than  previously  had  been 
incumbent  upon  that  tribunal.  In  a  line  of  cases,  too  well  known  to 
require  or  justify  enumeration  here,  the  Supreme  Court  has  analyzed 
and  discussed  the  extent  to  which  constitutional  prohibitions  or  funda- 
mental principles  are  and  must  be  modified  by  that  uncertain  reserve 
power  in  the  states  known  as  the  police  power.  It  should  be  re- 
membered that  the  whole  doctrine  of  the  police  power  is  of  judicial 
origin ;  that  no  provision  in  the  Constitution  of  the  United  States,  nor, 
so  far  as  the  researches  of  the  present  writer  have  shown,  in  that  of 
any  state,  expressly  limits  or  qualifies  the  declaration  of  the  rights 
which  they  purport  to  secure  to  individuals,  by  the  further  declaration 
that  any  law  which  the  legislature  may  choose  to  enact  for  the  avowed 
purpose  of  protecting  public  health,  public  safety,  or  public  morals, 
or  of  providing  for  the  general  public  welfare,  shall  be  valid,  not- 
withstanding any  effect  which  such  law  may  have  upon  the  rights 
guaranteed  by  the  Constitution. 

There  are  in  many  of  the  modern  State  constitutions  provisions 
expressly  subordinating  all  corporation  to  the  police  power.  Such 
provisions  are  generally  expressed  in  such  language  as  the  following  : 

The  police  power  of  the  State  shall  never  be  abridged  or  so  construed 
as  to  permit  corporations  to  conduct  their  business  in  such  manner  as  to 
infringe  the  equal  rights  of  individuals,  or  the  general  well-being  of  the 
State.i 

Such  provisions,  obviously,  are  intended,  not  to  weaken,  but  to 
strengthen  provisions  in  the  Bills  of  Rights  in  behalf  of  individuals. 

The  wisdom  and  the  necessity  of  the  creation  of  some  such  doctrine 
as  that  of  the  police  power  may  well  be  recognized  ;  but  in  that  recogni- 
tion credit  also  should  be  given  to  the  sagacity  of  the  judges  who  first 
perceived  the  impossibility  of  carrying  on  government  without  some 
such  lubricant,  and  who  therefore  formulated  and  applied  the  theory  of 
the  police  power. 

Criticism  of  the  failure  of  the  judiciary  to  extend  this  principle  in 
some  instances  to  particular  cases  of  novel  and  experimental  legislation 
for  social  betterment  should  be  silenced  by  a  recognition  of  the  far- 
seeing  statesmanship  which  first  led  courts  by  the  application  of  "the 
rule  of  reason"  to  enunciate  the  doctrine  of  the  police  power  and  the 
necessity  of  so  applying  it  as  not  to  override  express  constitutional 
provisions. 

In  the  Slaughter-House  Cases,  16  Wall.  (U.  S.)  36,  in  which  the 
doctrine  first  received  extensive  consideration  by  the  Supreme  Court 

_ '  See  constitutions  of  Pennsylvania  (1873),  North  Dakota  (18S9),  Montana  (1889), 
Mississippi  (1890),  Kentuckj'  (i8qo),  Virginia  (1Q02),  South  Dakota  (1898),  Louisiana 
(1898),  Idaho  (1889).  The  constitutions  of  Wyoming  (1889)  and  New  Mexico  (1911)  con- 
tain a  clause,  "The  police  power  of  the  state  is  supreme  over  all  corporations  as  well  as 
individuals."     (Thorpe's  constitutions.) 


122  THE  POLICE   POWER 

after  the  adoption  of  the  Fourteenth  Amendment,  Mr.  Justice  Field, 
in  his  dissenting  opinion,  said  : 

With  this  power  of  the  state  and  its  legitimate  exercise  I  shall  not  differ 
from  the  majority  of  the  court.  But  under  the  pretense  of  prescribing  the 
police  regulation  the  state  cannot  be  permitted  to  encroach  upon  any  of  the 
just  rights  of  the  citizens,  which  the  Constitution  intended  to  secure  against 
abridgment,     (p.  87) 

No  student  of  the  history  of  the  legislation  enacted,  and  that  sought 
to  be  justified  under  this  power,  can  fail  to  recognize  that  the  appre- 
hension suggested  in  this  statement  has  been  realized,  and  that 
the  rights  intended  to  be  secured  to  citizens  under  state  and  federal 
constitutions  have  been  and  are  being  continually  encroached  upon 
in  the  interests  of  what  is  vaguely  known  as  "  the  public  welfare." 

If  the  views  suggested  by  Mr.  Justice  Holmes,  in  dissenting  from 
the  majority  opinion  in  Lochner  vs.  New  York,^  should  prevail,  and 
courts  be  held  to  have  "nothing  to  do  with  the  right  of  a  majority  to 
embody  their  opinions  in  law,"  written  constitutions  had  better  be 
avowedly  and  formally  abolished,  as  bills  of  rights  would  then  become 
mere  mockeries. 

But  such  views  have  not  always  prevailed,  although  they  certainly 
have  affected  the  modern  tendency  of  decision  in  the  Supreme  Court. 

I        Professor  Freund  ^  defines  the  term  "  police  powder  "  "  as  meaning  the 

\  power  of  promoting  the  public  w^elfare  by  restraining  and  regulating 

1  the  use  of  liberty  and  property." 

^  Professor  Tiedeman,  in  the  preface  to  his  treatise  on  "  State  and 
Federal  Control  of  Persons  and  Property  in  the  United  States,"  says 
that  the  police  power  is  properly  confined  to  the  detailed  enforcement 
of  the  legal  maxim  sic  utere  tuo  ut  alienum  non  Iccdas,  and  he  quotes, 
wdth  approval,  a  passage  from  an  opinion  of  Judge  Henshaw  in  the 
Supreme  Court  of  California,  in  which  that  judge  says  that  while  the 
police  power  is  one  whose  proper  use  makes  most  potently  for  good. 

In  its  undefined  scope  and  inordinate  exercise  lurks  no  small  danger  to 
the  republic;  for  the  difficulty  which  is  experienced  in  defining  its  just 
limits  and  bounds  affords  a  temptation  to  the  legislature  to  encroach  upon 
the  rights  of  citizens  with  experimental  laws  none  the  less  dangerous  because 
well  meant.^ 

In  Bartemeyer  vs.  lowa,^  Mr.  Justice  Field,  who  had  dissented  from 
the  decision  of  the  court  in  the  Slaughter-House  Cases,  in  an  opinion 
concurring  with  the  majority,  stated  the  position  of  the  judges  who 
had  dissented  in  those  cases  to  be,  not  that  they  contended  that  the 
Fourteenth  Amendment  interfered  in  any  respect  with  the  police  power 

1  iq8  U.S.  45,  75-  *  "2  Cal.  468,  473. 

2  Freund,  The  Police  Power,  Preface.  <  18  Wall.  (U.S.)  129. 


THE   POLICE   POWER  123 

of  the  state  or  was  adopted  for  any  such  purpose ;  but  that  under  the 
pretense  of  prescribing  a  poHce  regulation  the  state  could  not  be  per- 
mitted to  encroach  upon  any  of  the  just  rights  of  the  citizens  which 
the  Constitution  intended  to  guard  against  abridgment ;  and  because 
in  their  opinion  the  act  of  Louisiana  under  consideration  in  the 
Slaughter-House  Cases  went  far  beyond  the  province  of  a  police  regu- 
lation and  created  an  oppressive  and  odious  monopoly  they  regarded  it 
as  unconstitutional. 

In  almost  every  case  in  which  the  constitutionality  of  legisla- 
tion sought  to  be  held  under  the  police  power  has  been  considered 
by  the  Supreme  Court,  the  court  has  taken  pains  to  declare  that  a 
state  cannot,  under  the  pretense  of  the  exercise  of  the  police  power, 
encroach  upon  the  powers  of  the  general  government  or  rights  granted 
or  secured  by  the  supreme  law  of  the  land.^ 

But,  as  Mr.  Justice  Holmes  said  in  Otis  vs.  Parker,^ 

General  propositions  do  not  carry  us  far.  While  the  courts  must  exer- 
cise a  judgment  of  their  own,  it  by  no  means  is  true  that  every  law  is  void 
which  may  seem  to  the  judges  who  pass  upon  it  excessive,  unsuited  to  its 
ostensible  end,  or  based  upon  conceptions  of  morality  with  which  they 
disagree. 

In  the  case  of  Holden  vs.  Hardy  ^  the  court,  in  discussing  the  question 
whether  or  not  a  state  law  violated  the  due  process  clause  of  the  Four- 
teenth Amendment,  referred  to  many  local  reforms  which  had  been 
enacted  in  the  states,  saying  that  they  were  mentioned  only  for  the 
purpose  of  calling  attention  to  a  probability  that  other  changes  of  no 
less  importance  might  be  made  in  the  future,  "  and  that  the  Consti- 
tution of  the  United  States,  which  is  necessarily  and  to  a  large 
extent  inflexible  and  exceedingly  difliicult  of  amendment,  should  not 
be  so  construed  as  to  deprive  the  states  of  the  power  to  so  amend 
their  laws  as  to  make  them  conform  to  the  wishes  of  the  citizens  as 
they  may  deem  best  for  the  public  welfare  without  bringing  them 
into  conflict  with  the  supreme  law  of  the  land."     (p.  387) 

This  case  perhaps  was  the  first  one  to  suggest  that  the  doctrine  of 
expediency  should  control  the  judgment  of  the  court  in  measuring 
state  enactments  with  constitutional  requirements.  The  premise 
upon  which  it  was  based  has  been  proved  untenable  by  a  recent  demon- 
stration, in  the  adoption  of  two  constitutional  amendments  within  a 
short  time  of  their  proposal,  that  the  Constitution  of  the  United 
States  may  be  easily  amended  when  a  substantial  tnajority  of  the  people 
desire  it  to  be  done. 

'  See  Beer  Co.  vs.  Mass.,  q7  U.S.  25,  28;  Butchers'  Union  vs.  Cresent  City  Co.,  11 1  U.S. 
746,  754;  Lochner  vs.  New  York,  198  U.S.  45. 
2  187  U.S.  606,  608. 
3 169  U.S.  366. 


124  THE  POLICE  POWER 

In  an  earlier  case,  the  Supreme  Court  repudiated  the  proposition 
that  a  state,  in  the  face  of  the  Fourteenth  Amendment,  could  make 
due  process  of  law  of  anything  which  it  chooses  to  declare  as  such, 
saying : 

To  affirm  this  is  to  hold  that  the  prohibition  to  the  states  is  of  no  avail, 
or  has  no  application  where  the  invasion  of  private  rights  is  effected  under 
the  forms  of  state  legislation.^ 

But  the  opinion,  if  not  the  actual  decision,  in  Holden  vs.  Hardy  is 
scarcely  consistent  with  this  reservation,  and  in  Railroad  Co.  vs. 
Drainage  Commissioners^  the  court,  speaking  by  Mr.  Justice  Harlan, 
said:  (p.  592) 

We  hold  that  the  police  power  of  the  state  embraces  regulations  designed 
to  promote  the  public  convenience  or  the  general  prosperity,  as  well  as 
regulations  designed  to  promote  the  public  health,  the  public  morals,  or 
the  public  safety.  .  .  .  And  the  validity  of  a  police  regulation,  whether 
established  directly  by  the  state  or  by  some  public  body  acting  under  its 
sanction,  must  depend  upon  the  circumstances  of  each  case  and  the  char- 
acter of  the  regulation,  whether  arbitrary  or  reasonable  and  whether  really 
designed  to  accomplish  a  legitimate  public  purpose. 


The  recognition  by  the  courts  of  an  undefined  and  undefinable 
power  in  the  legislature,  qualifying  the  declaration  of  fundamental 
individual  rights,  does  indeed  impose  an  arduous  duty  upon  the 
judiciary  in  determining  when  even  this  wide  area  of  legislation  is  de- 
parted from  in  the  effort  to  secure  Utopian  conditions  through  legisla- 
tion. On  the  other  hand,  it  opens  such  a  wide  and  undefined  pathway 
around  constitutional  restrictions,  that  nothing  but  constant  vigilance, 
careful  analysis,  and  inflexible  obedience  to  the  spirit  and  intent  of 
constitutional  mandates  on  the  part  of  the  judiciary  can  prevent  the 
gradual  but  effective  impairment  of  their  force.  If  the  scope  attrib- 
uted to  the  police  power  by  JMr.  Justice  Holmes  in  the  Oklahoma 
Bank  Guaranty  Cases  ^  is  to  prevail,  it  is  hard  to  see  what  restrictions 
upon  legislative  effort  to  promote  the  social  welfare  still  remain,  short 
of  the  crude  appropriation  of  individual  property  for  private,  as  dis- 
tinguished from  public,  purposes.  "It  may  be  said  in  a  general  way," 
runs  his  opinion  in  that  case,  "  that  the  police  power  extends  to  all  the 
great  public  needs.  Camfield  vs.  United  States,  167  U.  S.  518.  It 
may  be  put  forth  in  aid  of  what  is  sanctioned  by  usage,  or  held  by  the 
prevailing  morality,  or  strong  and  preponderant  opinion,  to  be  greatly 
and  immediately  necessary  to  the  public  welfare."     Yet  that  the 

'  Davidson  vs.  New  Orleans,  96  U.S.  97. 

2  200  U.S.  561. 

*  Noble  State  Bank  vs.  Haskell,  219  U.S.  104,  112. 


THE   POLICE   POWER  125 

learned  justice  recognized  that  this  broad  statement  requires  some 
quaUfication  is  evidenced  by  his  further  observation : 

With  regard  to  the  police  power,  as  elsewhere  in  the  law,  lines  are  pricked 
out  by  the  gradual  approach  and  contact  of  decisions  on  the  opposing  sides. 
...  It  wlU  serve  as  a  datum  on  this  side,  that  in  our  opinion  the  statute 
before  us  is  well  within  the  state's  constitutional  power,  while  the  use  of 
the  public  credit  on  a  large  scale  to  help  individuals  in  business  has  been 
held  to  be  beyond  the  Une. 

In  an  earlier  case^  the  Supreme  Court  declared  that  while  "the  right 
to  exercise  the  police  power  is  a  continuing  one  .  .  .  yet  the  exercise 
of  this  power  is  subject  to  judicial  review,  and  property  rights  cannot 
be  wrongfully  destroyed  by  arbitrary  enactment." 

In  every  case,  the  courts  at  all  events  must  inquire-  "whether  the 
legislature  has  adopted  the  statute  in  the  exercise  of  a  reasonable  dis- 
cretion, or  whether  its  action  be  a  mere  excuse  for  unjust  discrimina- 
tion, or  the  oppression  or  spoliation  of  a  particular  class."  ^ 

So  far  from  the  Supreme  Court  being  open  to  fair  criticism  for  giving 
unduly  narrow  construction  to  constitutional  provisions  in  favor  of 
public  welfare,  a  more  candid  criticism  might  suggest  that  that  great 
tribunal  in  common  with  other  courts  had  yielded  somewhat  unduly 
to  public  criticism  in  giving  effect  to  legislation,  which,  however  de- 
sirable from  the  standpoint  of  social  reform,  yet  involves  a  measurable 
encroachment  upon  some  of  those  individual  rights  to  secure  which 
the  Fourteenth  Amendment  was  adopted. 

Modern  criticism  of  courts  apparently  proceeds  upon  the  theory 
that  constitutional  provisions  shall  be  enforced  only  until  a  certain 
number  of  people  who  are  able  to  give  expression  to  their  views  in 
newspapers,  magazines,  and  on  the  lecture  platform  shall  contend 
that  some  other  principles  should  control  legislative  action.  The 
theory  of  the  framers  of  constitutions  in  the  past  has  been  that  their 
provisions  were  to  be  more  than  temporary  in  duration,  and  that  they 
should  be  respected  and  enforced,  until  a  sufficiently  large  number  of 
people  should  disagree  with  them  to  bring  about  a  modification  of 
the  constitution  in  the  method  provided  in  such  instrument ;  and  that 
the  question  whether  or  not  legislative  or  executive  action  exceeded 
constitutional  limitations  should  not  be  left  to  the  final  determination 
of  those  acting,  but,  when  arising  in  the  course  of  litigation,  should 
become  a  judicial  question,  to  be  determined  by  the  courts  of  justice. 
This  has  been  the  American  theory  of  constitutional  government; 
and  it  is  interesting  to  note  that  the  same  theory  was  deliberately 
adopted  in  one  of  the  newest  and,  in  some  respects,  the  most  radical 
of  English  federations,  —  Australia. 

•Dobbins  vs.  Los  Angeles,  195  U.S.  223-239. 

'  Holden  vs.  Hardy,  169  U.S.  366,  398. 

*  See  also  Dobbins  vs.  Los  Angeles,  supra,  and  cases  cited  on  pp.  236-238. 


126  THE  POLICE  POWER 

In  the  convention  which  framed  the  constitution  of  the  Common- 
wealth of  AustraUa  it  was  proposed  that  when  any  law  passed  by 
the  Commonwealth  Parliament  was  declared  unconstitutional  by 
a  decision  of  the  High  Court,  the  executive  might,  upon  the  adoption  of 
a  resolution  by  absolution  majorities  in  both  houses,  or  in  one  house 
alone,  refer  the  law  to  the  electors  for  their  approval,  and,  if  so  approved, 
that  the  same  should  become  a  law  notwithstanding  the  constitution 
—  in  effect  Colonel  Roosevelt's  proposition  for  the  recall  of  judicial 
decisions. 

But  Mr.  Moore,  in  his  work  on  the  "  Constitution  of  the  Common- 
wealth," says : 

The  proposal  received  no  support,  and  the  maintenance  of  the  individual 
right  to  impugn  laws  is  the  more  significant  because  in  other  respects  the 
constitution  differs  markedly  from  the  Constitution  of  the  United  States 
in  not  establishing  rights  of  individuals  against  governmental  interference.^ 

The  constitution,  as  adopted,  expressly  empowered  the  Parliament, 
"  subject  to  this  constitution,"  "  to  make  laws  for  the  peace,  order,  and 
good  government  of  the  Commonwealth,  with  respect  to"  certain 
enumerated  subjects,  and  authorized  Parliament  to  confer  original 
jurisdiction  upon  the  High  Court  in  any  matter  "arising  under  this 
constitution,  or  involving  its  interpretation."  Not  only  was  the 
finality  of  judicial  interpretation  of  constitutional  power  recognized 
as  incident  to  the  ordinary  administration  of  justice,  but  it  was  also 
provided  that  under  certain  conditions  the  executive  or  the  legislature 
might  require  the  opinions  of  the  justices  of  the  High  Court  upon 
constitutional  questions,  and  it  was  further  declared, 

No  appeal  shall  be  permitted  to  the  Queen  in  Council  from  the  decision 
of  the  High  Court  upon  any  question  howsoever  arising  as  to  the  limits 
ititer  se  of  the  constitutional  powers  of  the  Commonwealth  and  those  of 
any  state  or  states,  or  as  to  the  limits  inter  sc  of  the  constitutional  powers 
of  any  two  or  more  states,  unless  the  High  Court  shall  certify  that  the 
question  is  one  which  ought  to  be  determined  by  Her  Majesty  in  CouncU.^ 

It  would  be  well  if  the  exercise  of  the  police  power  could  be  limited 
by  the  test  often  enunciated,  but  not  always  followed,  of  reasonable- 
ness, as  distinguished  from  arbitrary  or  capricious  action.* 

But  the  pressure  is  very  great  on  the  part  of  social  reformers  to 
compel  legislation  which  transcends  constitutional  restrictions,  and 
seeks  justification  under  the  elastic  boundaries  of  the  police  power, 

'  See  Moore,  Constitution  of  the  Commonwealth,  2  ed.,  Melbourne,  iqio,  p.  360. 

^  See  Edgerton,  Federations  and  Unions  within  the  British  Empire,  Oxford,  igii,  pp. 
58,  66,  212,  214. 

5  State  ex  rel.  Davis  vs.  Clausen,  117  Pac.  iioi. 

See  also  "Judicial  Construction  of  Fourteenth  Amendment,"  by  Francis  J.  Swayze,  26 
Harvard  Law  Review,  i. 


THE  POLICE  POWER  127 

and  any  interference  with  their  programs  by  decisions  of  courts  based 
upon  constitutional  limitations  is  received  by  them  with  impatience, 
and  provokes  them  to  intemperate  attacks  on  judges  and  the  exercise 
of  the  judicial  function  just  described.  The  leader  of  the  radical 
movement  against  the  judicial  enforcement  of  constitutional  limita- 
tions has  declared  his  belief  that  courts  should  continue  to  have  the 
power  to  declare  void  unconstitutional  legislation,  but,  he  adds,  "only 
provided  the  power  is  exercised  with  the  greatest  wisdom  and  self- 
restraint."  ^  If  the  continued  existence  of  governmental  functions 
were  to  be  dependent  upon  officials  always  exercising  powers  vested 
in  them  "with  the  greatest  wisdom  and  self-restraint,"  it  may  be 
questioned  how  long  government  could  continue.  Certainly  there 
have  been  times  when  the  executive  office  under  such  a  test  would 
have  had  to  go  into  commission.  There  are  infirmities  in  all  human 
institutions,  but  government  is  an  exceedingly  practical  business. 
The  framers  of  our  institutions  believed  that  the  welfare  of  society 
would  suffer  if  the  legislature  had  unlimited  power.  When  the  states 
became  members  of  a  federal  union  the  short  experience  under  the 
original  Articles  of  Confederation  demonstrated  the  need  of  a  stronger 
central  government,  and  of  some  power  to  prevent  either  state  or 
national  government  from  encroaching  upon  the  domain  assigned  to 
the  other.  This  power  was  provided  in  an  impartial  judicial  establish- 
ment. Our  forefathers  had  suffered  from  various  kinds  of  tyranny. 
They  proposed  to  protect  the  individual  citizen  in  his  life,  his  liberty, 
his  reputation,  and  his  property,  against  any  form  of  oppression, 
and  to  that  end  they  formulated  and  embodied  in  the  fundamental 
law  declarations  of  rights  which  were  to  be  forever  recognized  and 
preserved.  The  judiciary  was  made  the  guardian  of  those  rights.  In 
the  discharge  of  that  sacred  trust  it  has  sometimes  erred  ;  but  on  the 
whole  it  has  not  allowed  the  letter  to  stifle,  but  has  been  quickened  by 
the  spirit  of  liberty  under  law.  Mr.  Justice  Holmes  recently  said  he 
did  not  believe  the  Union  would  be  imperiled  if  the  Supreme  Court 
lost  its  power  to  declare  an  act  of  Congress  void ;  but  he  added,  "I  do 
think  the  Union  would  be  imperiled  if  we  could  not  make  that  dec- 
laration as  to  the  laws  of  the  several  states.  For  one  in  my  place  sees 
how  often  a  local  policy  prevails  with  those  who  are  not  trained  to 
national  views  and  how  often  action  is  taken  that  embodies  what  the 
commerce  clause  was  meant  to  end."  - 

Whether  the  power  be  taken  away  directly,  or  be  deadened  and 
atrophied  in  its  action  by  adverse  criticism  and  demagogic  clamor, 
when  the  judiciary  no  longer  shall  feel  at  liberty  to  construe  the  pro- 
visions of  the  fundamental  law  "in  the  light  of  reason,"  constitutional 

'  The  Outlook,  supra,  Jan.  6,  igi2. 

*  Speech  by  Mr.  Justice  Holmes  before  the  Harvard  Law  Association,  New  York,  Senate 
Doc.  No.  1106,  62d  Cong.,  3d  session. 


128  THE  POLICE  POWER 

government,  in  the  sense  in  which  it  has  been  understood  for  a  century 
and  a  half,  will  be  at  an  end,  and  the  doctrine  of  the  police  power  will 
have  been  swallowed  up  in  the  capacious  maw  of  unrestrained  democ- 
racy. 

STATE   POLICE   POWERS   AND   FEDERAL   PROPERTY 
GUARANTEES 

By  Charles  C.  Marshall  of  the  New  York  Bar 

(From  the  Columbia  Law  Review,  March,  1904) 

The  Federal  Constitution  as  originally  adopted  contained  only 
two  clauses  that  could  be  said  to  be  guarantees  of  property  rights^ 
as  against  the  exercise  by  the  States  of  their  Police  Powers.  They 
were  contained  in  the  Commerce  Clause,  providing  that  Congress  shall 
have  power  to  regulate  commerce  with  foreign  Nations  and  among  the 
several  States,  and  in  the  Fugitive  Slave  Clause.  The  Commerce 
Clause,  in  that  it  signified  freedom  of  commerce  from  State  control 
was  a  guaiantee  of  property  rights  involved  therein,  and  the  Fugitive 
Slave  Clause,  in  that  it  secured  the  return  of  the  fugitive  slave  was  a 
guarantee  to  the  Slave  States  of  s'.ave  property.  Both  operated  to 
restrain  the  States  in  the  exercise  of  their  Police  Powers  touching  the 
property  in  question. 

We  do  not  overlook  the  provisions  forbidding  the  States  to  pass 
laws  impairing  the  obligation  of  contracts,  that  full  faith  and  credit 
should  be  given  by  each  State  to  the  public  acts,  records  and  judicial 
proceedings  in  every  other  State,  that  the  citizens  of  each  State  should 
be  entitled  to  all  the  provisions  and  immunities  of  citizens  in  the  several 
States,  nor  such  provisions  as  those  delegating  to  the  National  Govern- 
ment the  power  to  tax,  to  establish  uniform  bankruptcy  laws,  and  to 
coin  money  and  regulate  the  value  thereof,  and  to  fix  the  standard  of 
weights  and  measures.  All  these  may  at  times  affect  property  rights 
and  possibly  override  some  manifestations  of  State  Police  Powers, 
but  their  effect  is  indirect  and  incidental  and  they  are  in  no  sense  limi- 
tations on  State  sovereignty  in  respect  to  property  rights  and  are  not  to 
be  considered  here. 

The  jealousy  by  the  States  of  the  Federal  Power  which  thus  showed 
itself  in  the  Federal  Constitution  as  originally  adopted  was  none  the 
less  active  in  1789  when  the  first  ten  amendments  were  added,  for, 
as  is  well  known,  these  were  directed  against  the  National  Govern- 
ment in  their  restricti^^e  effect  and  were  not  intended  to  apply  to  the 

'  It  is,  of  course,  Common  Law  property  rights  which  are  referred  to.  Special  property 
rights,  such  as  patents,  copyrights,  etc.,  are  excepted  from  consideration  here. 


THE  POLICE  POWER  129 

States.  They  in  effect  pro\dded,  touching  property,  that  no  person 
should  be  deprived  by  the  Federal  Government  of  life,  liberty  or  prop- 
erty without  due  process  of  law,  and  that  private  property  should  not 
be  taken  by  the  same  for  public  use  without  compensation.  The 
States  in  these  respects  were  still  left  free  of  Federal  limitations. 


Each  State  in  the  exercise  of  its  Police  Power  may  determine  the 
status  of  property,  may  impair  and  in  effect  destroy  it,  whether  such 
property  exist  originally  within  the  State  or  come  therein  from  other 
States  in  which  it  enjoys  the  full  property  status.  No  interstate  rights 
or  obligations  can  be  pleaded  by  the  other  States  and  there  is  no 
Federal  power  or  guarantee  which  they  can  invoke.  Violent  as  was 
the  revolution  in  interstate  property  rights  marked  by  the  Fourteenth 
Amendment,  it  was  confined,  with  the  qualification  stated  above,  to 
one  species  of  property  which  it  swept  out  of  existence.  All  other 
property  in  the  States  of  the  Union  remained  with  attributes  and  in- 
cidents the  same  as  from  the  beginning  wholly  subject  to  the  State 
Police  Powers  to  whose  dread  exercise  property  always  has  yielded  as 
readily  as  wax  in  the  blaze  of  the  furnace. 

It  is  desirable  at  this  point  to  refer  to  cases  which  reveal,  as 
no  definition  can,  the  present  limits  of  the  Police  Power  under  our  law. 
We  may  select  the  Slaughter  House  cases ;  ^  Mugler  vs.  Kansas ;  ^ 
Munn  I's.  Illinois.^ 

In  the  Slaughter  House  cases  the  Court  sustained  the  exercise  of 
the  Police  Power  by  the  State  of  Louisiana  in  a  statute  which  in  effect 
destroyed  the  value  of  a  large  amount  of  property  in  lands  and  build- 
ings and  fell  with  crushing  force  upon  the  citizens  of  the  State  engaged 
in  slaughtering.  The  statute  provided  that  that  business  should  be 
entirely  given  over  to  a  single  corporation,  or,  if  pursued  by  others, 
should  be  conducted  on  the  premises  of  such  privileged  corporation 
upon  payment  thereto  for  the  privilege.  We  quote  from  the  language 
of  Mr.  Justice  Field  in  his  dissenting  opinion : 

The  act  of  Louisiana  presents  the  naked  case,  unaccompanied  by  any 
public  considerations,  where  a  right  to  pursue  a  lawful  and  necessary  call- 
ing previously  enjoyed  by  every  citizen,  and  in  connection  with  which  a 
thousand  persons  were  daily  employed,  is  taken  away  and  vested  exclu- 
sively for  twenty-five  years,  for  an  extensive  district  and  a  large  population, 
in  a  single  corporation,  or  its  exercise  is  for  that  period  restricted  to  the 
establishments  of  the  corporation,  and  then  allowed  only  upon  onerous 
conditions. 

In  the  case  of  Mugler  vs.  Kansas,  the  State  statute  prohibited  the 
manufacture  and  sale  of  intoxicating  liquors  for  use  as  a  beverage, 

»  (1872)  16  Wall.  36.  2(1887)  123  U.S.  623.  '(1876)  94  U.S.  113. 


I30  THE   POLICE   POWER 

declared  all  places  for  their  manufacture,  sale  or  gift,  common  nui- 
sances, and  provided  that  upon  the  judgment  of  a  Court  to  that  effect, 
the  sheriff  should  close  them  and  destroy  all  property  including  not 
only  liquors,  but  screens,  bars,  tables,  glasses  and  other  property 
used  therein,  irrespective  of  the  fitness  and  value  of  such  property 
for  other  and  innocent  purposes.  The  owner  was  upon  con\dction 
to  be  punished  by  fine  and  imprisonment.  No  jury  trial  was  provided 
for. 

In  the  Grain  Elevator  Case,  Munn  vs.  Illinois,  it  was  held  that  a 
State  Legislature  could  fix  by  law  the  maximum  charges  for  the 
storage  of  grain  in  warehouses  in  the  State  held  in  private  ownership, 
and  it  was  asserted  that  private  property,  when  it  is  devoted  by  the 
owner  to  a  public  use  or  the  prosecution  of  a  business  affected  with  a 
public  interest,  is  subject  to  legislative  regulation  in  respect  to  prices 
and  charges.  This  decision  profoundly  affected  all  property  interests 
in  the  United  States,  and  may  be  considered  as  one  of  the  most  mo- 
mentous ever  rendered  by  the  Court.  By  subsequent  decisions,^  the 
Court  held  that  such  prices  and  charges  must  be  reasonable,  and  that 
the  power  to  review  the  Statute  fixing  them  and  to  hold  the  same  un- 
constitutional and  void  for  unreasonableness  was  a  judicial  power  — 
a  qualification  which  mitigates  to  some  extent  the  sweeping  character 
of  the  first  decision.  But  as  this  rule  of  reasonableness  must  change 
with  public  sentiment,  and  }deld  to  economic  and  political  exigencies, 
to  the  influence  of  which  courts  as  well  as  legislatures  are  subject,  its 
efiicacy  may  well  be  doubted. 

Such  being  our  Constitutional  Law  of  property  rights,  it  is  difficult  to 
discover  any  basis  for  that  rigid  conception  of  property  which  prevails 
in  American  life,  for  that  widespread  notion  of  Federal  property 
guarantees  ready  to  be  invoked  by  the  citizens  of  the  States,  for  that 
con\dction  so  deeply  imbedded  even  in  intelligent  minds  that  the 
legal  conception  of  property  is  definite  and  permanent,  that  "prop- 
erty" existed  prior  to  the  Constitution  and  is  superior  to  it,  and  that 
the  principal  object  of  that  instrument  is  to  preserve  it  forever  in  its 
original  lines  regardless  of  economic,  social  and  moral  changes,  the 
exigencies  of  society  and  the  very  life  of  the  State  itself. 

So  distinguished  an  authority  on  the  practical  side  of  the  property 
question  as  Mr.  Morgan  in  his  testimony  in  the  Northern  Securities 
Case,  defined  the  principle  of  community  of  interests  as  "that  principle 
that  a  certain  number  of  men  who  own  property,  can  do  what  they 
like  with  it."  It  is  clear  that  under  our  law  the  most  powerful  indi- 
\ddual  cannot  do  as  he  likes  with  his  property.  The  artificial  owner- 
ship that  arises  from  combination  or  incorporation  as  hereafter  more 
fully  pointed  out,  so  far  from  extending  the  rights  of  property,  limits 

1  C.  M.  &  St.  p.  R.  R.  Co.  vs.  Minnesota  (1889)  134  U.S.  418;  Covington  &  Lex.  Road 
Co.  vs.  Sanford  (1896)  164  U.S.  578. 


THE   POLICE   POWER  131 

them  and  subordinates  them  further  to  the  public  interest.  The 
Common  Law  maxim,  "A  man  may  do  as  he  will  with  his  own,"  is 
frequently  quoted.  The  qualification  which  the  Common  Law 
always  attached  is  overlooked  or  disregarded  —  ''so  that  he  does  not 
injure  another."  In  the  first  clause  of  the  maxim  is  the  sum  and  sub- 
stance of  the  Common  Law  of  private  property ;  in  the  second  clause 
is  its  condensed  doctrine  of  the  Police  Power.  To  state  either  without 
the  other  is  a  manifest  perversion. 

It  was  the  grave  contention  of  the  coal  owners  that  the  late  contro- 
versy between  them  and  their  employees  was  a  purely  private  affair, 
in  which  the  public  had  no  interest.  Through  artificial  combination 
they  had  stifled  competition,  and  possessed  themselves  practically  of 
the  national  anthracite  coal  supply.  They  had  as  donations  from  the 
Public  their  right  of  combination,  perpetuity  of  existence  in  their 
corporations,  their  railway  franchises  across  the  public  domain. 
With  all  this  they  asserted  that  their  rights  and  duties  were  only  those 
of  private  owners.  The  claim  was  even  made  that  inasmuch  as  the 
Public  could  use  bituminous  coal,  anthracite  coal  was  not  a  necessary 
of  life,  and  that  therefore  the  Public  had  no  interest  in  the  situation  — 
a  suggestion  which  savored  much  of  the  innocent  inquiry  of  the  Queen 
of  France,  at  a  somewhat  critical  period  of  the  world's  history,  "If 
the  people  cannot  get  bread,  why  don't  they  eat  cake?"  Not  less 
remarkable  were  the  claims  of  labor  combinations  on  the  opposite 
side  of  the  controversy  in  respect  to  their  commodity  of  labor.  The 
true  answer  to  the  claims  of  both  parties  is  that  as  the  one  side  by 
combination  had  assumed  the  duty  of  supplying  the  Public  with  coal, 
and  as  the  other  side  had  assumed  the  duty  of  supplying  the  Public 
with  labor,  both  had  entered  upon  a  ser\-ice  or  duty  affected,  yes, 
dominated,  by  a  public  interest,  and  the  interposition  of  the  Public  by 
way  of  legislative  action,  and  even  by  the  much  criticised  action  of 
the  Chief  Federal  Executive,  may  have  had,  under  the  doctrine  of  the 
Grain  Elevator  Case,  and  the  force  of  the  Commerce  Clause,  a  firmer 
legal  and  constitutional  basis  than  was  apprehended  at  the  time. 

Not  the  least  important  fact  in  that  Case  was  that  the  property 
affected  was  vested  in  individual  as  distinguished  from  corporate 
ownership.  It  was  quite  generally  conceded  that  if  the  grain  ele\-ators 
had  been  owned  by  corporations  in  the  enjoyment  of  public  franchises, 
the  decision  of  the  Court  would  have  rested  on  a  firmer  basis,  but  the 
basis  of  the  decision,  as  we  have  said,  was  not  the  nature  of  the  owner- 
ship, but  the  fact  that  the  property  affected  was  '''  de^-oted  to  the  public 
use"  or  ''affected  with  a  public  interest." 

Space  does  not  permit  of  commenting  further  on  that  momentous 
decision.  We  may  however  refer  here  briefly  to  its  importance  to 
the  interstate  corporation  question.  It  may  be  said  that  a  "trust," 
(and  by  that  is  meant  nothing  more  than  the  corporation  of  sufficient 


132  THE  POLICE  POWER 

size  to  absorb  all  or  a  substantial  part  of  a  particular  class  of  property, 
manufacture  or  trade),  in  that  it  assumes  to  supply  the  Public  with  a 
particular  service  or  commodity,^  becomes  thereby  "affected  with  a 
public  interest "  and  therefore,  within  the  doctrine  of  the  Grain  Eleva- 
tor Case,  peculiarly  subject  to  legislative  control.  In  view  of  this  fact, 
the  recourse  of  the  most  important  property  and  industrial  interests 
of  the  country  to  incorporation  as  a  method  of  ownership  and  develop- 
ment w^ould  seem  to  be  fraught  with  some  peril,  and  if  some  late 
writers  on  political  economy  are  correct,  to  verify  the  maxim,  "Whom 
the  Gods  would  destroy  they  first  make  mad." 

The  enormous  industrial  expansion  and  material  development  of 
the  last  twenty  years  has  necessarily  engendered  interstate  property 
problems  of  great  magnitude.  Railway  extensions  and  consolida- 
tions,^ irrigation  schemes,'  sanitary  systems,^  and  municipal  water 
supplies  ^  have  brought  before  the  Supreme  Court  interstate  questions 
of  no\'el  aspect  and  great  importance.  To  these  conditions  the  vast 
increase  in  the  corporate  form  of  ow^nership  and  enterprise  ha\'e  largely 
added.  "The  trust"  as  defined  above,  in  its  largeness  of  resources, 
which  is  the  essential  result  of  combination,  easily  groups  in  one  arti- 
ficial ownership,  created  and  localized  in  one  State,  property  and 
rights  existing  in  and  ramifying  through  many  different  States.  Every 
such  artificial  ownership  may  raise  interstate  questions,  may  present 
a  conflict  between  property  rights  and  Police  Powers,  for  under  our 
Federal  system  every  such  artificial  ownership  rests  upon  quite  a  dif- 
ferent legal  basis  from  that  which  underlies  individual  or  natural 
ownerships. 

The  Constitution  provides  by  Article  IV  that  the  citizens  of  each 
State  shall  be  entitled  to  all  privileges  and  immunities  of  citizens 
in  the  several  States,  but  it  nowhere  provides  that  the  corporations  of 
each  State  shall  be  so  entitled.®  Therefore,  while  citizens  of  each 
State  may  in  common  with  the  citizens  of  any  other  State  acquire 
and  hold  property  within  that  State,  a  corporation  created  in  one 
State  cannot  acquire  and  hold  in  corporate  ownership  property  in 
another  State  whose  laws  forbid  such  corporate  ownership. 

'  The  corporation  embracing  the  trolley  lines,  gas  and  electric  interests  of  several  coun- 
ties in  New  Jersey  calls  itself  "The  Public  Service  Corporation." 

^  The  Northern  Securities  Merger. 

'Kansas  vs.  Colorado  (igo2)  185  U.S.  125. 

■*  Missouri  vs.  Illinois  (1900)  180  U.S.  208. 

'  New  York  City  vs.  Pine  (1902)  185  U.S.  93. 

'  Corporations  as  is  well  known  have  been  held  by  the  U.  S.  Supreme  Court  not  to  be 
citizens,  and  hence  not  to  be  entitled  to  the  privileges  of  citizens  within  the  provisions  of 
Article  IV  of  the  Federal  Constitution.  Santa  Clara  Co.  vs.  Southern  Pac.  R.R.  (1885) 
118  U.S.  394.  They  are,  however,  held  to  be  persons  and  therefore  entitled  to  the  protec- 
tion of  the  Fourteenth  .\mendment.  Covington  Turnpike  Co.  vs.  Sanford  (1896)  164  U.S. 
578.  No  contention  is  of  course  intended  to  be  made  in  the  te.xt  that  if  a  Slate  permits  the 
acquisition  of  property  within  it  by  a  corporation  of  another  State,  it  can  subsequently  arbi- 
trarily deprive  that  corporation  of  its  property.  The  Fourteenth  Amendment  would,  of 
course,  prevent. 


THE   POLICE  POWER  133 

It  is  therefore  clear  that  it  is  quite  within  the  power  of  a  State  to 
discriminate  against  the  corporations  of  other  States,  in  the  pursuit 
of  its  policy  and  in  the  exercise  of  its  Police  Power.  As  a  State  tends 
to  industrial  cooperation  and  an  intensified  social  development,  so  it 
will  extend  its  encouragement  to  the  corporate  form  of  ownership  and 
enterprise,  but  as  its  policy  may  be  directed  against  such  development, 
as  it  may  tend  toward  indi\'idualism,  it  will  assuredly  legislate  against 
the  corporation.  No  more  reasonable  issue  for  a  difference  in  State 
politics  can  be  found.  Individuals  as  members  of  the  body  social 
and  politic,  in  the  nature  of  things  submit  themselves  to  the  powers 
and  energies  of  other  individuals,  as  conditions  which  belong  to  the 
natural  order  of  things,  but  there  must  be  a  marked  change  in  funda- 
mental rights  and  in  the  status  of  citizenship  as  established  by  the 
Federal  Constitution  before  the  individual  citizens  of  any  State  can 
be  left  wholly  exposed  to  the  power  of  artificial  combinations  created  by 
other  States. 

Theory  and  experience  alike  demonstrate  the  magnitude  of  such 
powers.  Our  corporations  have  shown  their  ability  to  wield  with 
most  oppressive  results  the  despotism  of  a  wealth  transcending  in- 
di^•idual  limitations,  and  to  largely  impair,  if  not  wholly  to  re\-erse 
the  common  law  condition  of  competition.  It  is  true  that  an  individ- 
ual may  build  up  a  great  fortune,  and  with  it  exercise  large  powers, 
but  in  inherent  physical  limitations  and  in  the  shortness  of  human 
life,  are  found  sure  and  certain  restrictions  upon  the  exercise  of  his 
powers  in  derogation  of  the  natural  rights  of  his  fellows.  To  withhold 
property  from  dead  hands,  to  restrain  ownership  in  perpetuity  was  one 
of  the  prime  objects  of  the  Common  Law.  To  these  ends  the  people 
at  large  were  always  engaged  in  a  struggle  with  vested  interests,  and 
perhaps  one  of  the  most  important  questions  to-day  is  to  what  extent 
shall  corporations  be  permitted  to  absorb  in  perpetual  ownership 
the  vast  natural  properties  of  the  State,  such  as  the  coal  deposits,  the 
•petroleum  supply,  the  iron  mines  and  all  those  resources  which  make 
up  the  natural  wealth  of  a  People. 

The  testimony  and  the  argument  in  the  Northern  Securities  case 
revealed  that  the  paramount  purpose  of  the  capitalists  promoting 
the  Merger  was  to  vest  a  large  part  of  the  railway  interests  of  the  con- 
tinent, and  ultimately  of  the  Oriental  trade  of  the  Nation  in  one  cor- 
porate ownership  with  a  view  to  securing  the  advantage  of  perpetuity. 
The  journey  of  the  individuals  interested,' to  the  State  of  New  Jersey, 
some  two  thousand  miles  away,  for  incorporation,  was  picturesquely 
described  by  the  senior  counsel  for  the  Northern  Securities  Company 
at  the  bar  of  the  Supreme  Court,  as  a  race  with  Death. 

Taking  together  the  difference  in  our  law,  Federal  as  well  as  State, 
between  the  status  of  the  corporation  and  the  individual  as  outlined 
above,  the  great  development  of  the  corporate  form  of  enterprise  and 


134  THE  POLICE   POWER 

ownership,  its  economic  advantages,  its  perpetuity  of  existence,  it  is 
evident  that  the  situation  must  necessarily  develop  many  attempts 
to  affect  or  control  through  the  corporations  of  one  State  the  property 
rights  and  industrial  interests  localized  in  other  States,  and  that  such 
efforts  must  involve  sharp  conflicts  with  the  Police  Powers  of  those 
States. 

The  issue  to  which  I  refer,  in  one  aspect  at  least,  has  already  been 
presented  to  the  Supreme  Court,  for  it  is  a  real  issue  in  the  Northern 
Securities  Case.  Underneath  the  question  whether  the  Northern 
Securities  Merger  is  a  violation  of  the  Federal  Anti-Trust  Law,  which 
is  the  question  presented  in  the  case  of  the  United  States  against  that 
Company,  is  the  mxore  fundamental  and  perhaps  the  controlling  ques- 
tion,i  presented  in  the  case  of  the  State  of  Minnesota  against  that 
company,  whether  the  Northern  Securities  Company,  under  the  sover- 
eignty of  New  Jersey  which  created  it,  can  assert  rights  in  property 
localized  in  Minnesota,  contrary  to  the  statutes  of  that  State  enacted 
in  the  exercise  of  its  Police  Power.  It  is  the  same  question  which 
inhered  in  the  License  Cases  and  in  the  Slavery  Cases  —  the  para- 
mount right  of  a  State  in  the  exercise  of  its  Police  Power  to  determine 
the  status  of  property  localized  or  situate  within  its  territorial  limits 
as  against  the  legislation  of  another  State,  touching  such  property. 
The  Fugitive  Slave  Cause  alone  prevented  the  assertion  of  this  right 
in  regard  to  the  escaped  slave.  The  Commerce  Clause  alone  prevented 
its  assertion  in  regard  to  the  barrel  of  gin,  and  then  only  as  to  the  first 
sale  in  the  original  package.  What  shall  prevent  its  assertion  by  the 
State  of  Minnesota  in  respect  to  the  railways  of  that  State  ?  By  what 
Federal  Power  or  Guarantee,  by  what  inherent  Sovereign  Power  of 
her  own,  can  New  Jersey  assume  to  determine  the  status  of  the  owner- 
ship of  the  railways  of  Minnesota,  and  by  the  alchemy  of  modern  cor- 
poration law  convert  real  estate  in  Minnesota  into  personalty  through 
the  medium  of  stock  certificates,  and  consolidate  in  the  ownership  of  a 
New  Jersey  corporation  the  railways  of  Minnesota,  whose  consoli- 
dation the  fundamental  law  and  express  policy  of  that  State  forbid  ? 

The  plea  may  be  made,  as  it  has  been  made  by  the  Northern  Securi- 

*  In  making  this  suggestion  the  absence  of  purely  technical  questions  is  assumed.  There 
is  a  question  of  jurisdiction  in  the  case.  It  is  also  well  known  that  a  question  may  exist 
as  to  the  construction  of  the  statutes  of  Minnesota.  There  is  no  doubt  but  that  the  spirit 
and  intent  of  these  statutes  forbid  such  a  merger  of  competing  railroads  in  the  State  of  Min- 
nesota as  the  Northern  Securities  Company  is  intended  to  secure.  A  question  exists  whether 
the  language  of  the  statutes  is  sufficient  on  this  point.  They  provide  that  a  railroad  cor- 
poration, a  manager  or  purchaser  of  a  railroad  corporation,  shall  not  consolidate  with  or 
in  any  way  become  the  owner  of  or  control  any  other  railroad  corporation,  or  stock  thereof, 
which  owns  a  parallel  or  competing  line.  Whether  the  Northern  Securities  Company  is 
such  a  railroad  corporation  or  a  manager  or  a  purchaser  within  the  meaning  of  the  act  is  a 
question  in  the  case.  It  should  also  be  borne  in  mind  that  the  Minnesota  case  may  be 
disposed  of  on  some  ground  touching  the  injunctive  relief  asked  for.  The  alleged  owner- 
ship of  the  stock  was  acquired  by  the  Northern  Securities  Company  prior  to  the  commence- 
ment of  the  suit,  and  under  its  decisions  the  Court  has  the  power,  if  it  sees  fit,  to  deny  the 
equitable  remedy  on  the  familiar  ground  of  laches  or  delay. 


THE  POLICE   POWER  135 

ties  Company  in  the  Minnesota  case,  that  freedom  of  commerce  for- 
bids that  the  State  of  Minnesota  should  have  the  power  to  prevent  the 
consoHdation  of  her  State  railways,  in  that  such  consolidation,  neces- 
sarily affecting  interstate  commerce,  would  be  interference  therewith, 
and  therefore  illegal.  The  object  of  this  plea  is  obviously  to  secure 
the  consummation  of  the  purposes  of  the  Northern  Securities  Com- 
pany through  the  nullification  of  the  Railway  Law  of  Minnesota.  But 
the  plea  contains  within  itself  its  own  refutation,  for  surely  if  the  law 
of  the  State  of  Minnesota  consolidating  her  railways  is  void  because 
inimical  to  the  Commerce  Clause  of  the  Federal  Constitution,  the  law 
of  the  State  of  New  Jersey  creating  a  corporation  which  by  original 
purpose  or  subsequent  accident  consolidated  those  railways  in  a 
single  ownership  would  be  equally  inimical  to  the  Commerce  Clause. 
The  plea  obviously  overlooks  the  fact  that  the  Railway  Laws  of  Min- 
nesota are  laws  enacted  by  that  State  in  respect  to  property  within 
her  territorial  limits,  and  rights  and  interests  of  her  own  creation, 
while  the  rights  asserted  by  the  New  Jersey  corporation  are  asserted 
under  a  statute  of  New  Jersey  in  respect  to  property  localized  within 
a  sovereignty  remote  therefrom.  But  argument  in  respect  to  the 
vaHdity  of  the  plea  is  superfluous,  for  the  Supreme  Court  has  already 
spoken.  In  Louisville  &  Nashville  Railway  vs.  Kentucky, ^  the  Court 
said : 

But  little  need  be  said  in  answer  to  the  final  contention  of  the  plaintiff 
in  error,  that  the  assumption  of  a  right  to  forbid  the  consolidation  of  parallel 
and  competing  lines  is  an  interference  with  the  power  of  Congress  over 
interstate  commerce.  .  .  . 

It  has  never  been  supposed  that  the  dominant  power  of  Congress  over 
interstate  commerce  took  from  the  States  the  power  of  legislation  with 
respect  to  instruments  of  such  commerce,  so  far  as  the  legislation  was  within 
its  ordinary  Police  Powers.  Nearly  all  the  railways  in  the  country  have 
been  constructed  under  State  authority,  and  it  cannot  be  supposed  that 
they  intended  to  abandon  their  power  over  them  as  soon  as  they  were 
finished.  The  power  to  construct  them  involves  necessarily  the  power  to 
impose  such  regulations  upon  their  operation  as  a  sound  regard  for  the 
interests  of  the  public  may  seem  to  render  desirable.  In  the  division  of 
authority  with  respect  to  interstate  railways  Congress  reserves  to  itself  the 
superior  right  to  control  their  commerce  and  forbid  interference  therewith ; 
while  to  the  States  remains  the  power  to  create  and  to  regulate  the  instru- 
ments of  such  commerce,  so  far  as  necessary  to  the  conservation  of  the 
public  interests. 

If  it  be  assumed  that  the  States  have  no  right  to  forbid  the  consolidation 
of  competing  lines  because  the  whole  subject  is  within  the  control  of  Con- 
gress, it  would  necessarily  follow  that  Congress  would  have  the  power  to 
authorize  such  consolidation  in  defiance  of  state  legislation  — a  proposition 
which  only  needs  to  be  stated  to  demonstrate  its  unsoundness. 

1(1896)  161  U.S.  677- 


136  THE   POLICE  POWER 

A  State  has  the  right  at  the  inception  of  its  railway  development  to 
create  one  or  more  railroads  within  its  territory  as  it  pleases,  and  it  is 
equally  undisputed  that  at  all  future  times  it  may  consolidate  or  multi- 
ply such  railroads  without  in  any  respect  invading  the  Commerce 
Power.  It  would  be  only  in  the  event  of  some  extreme  exigency 
that  Congress  could  forbid  such  consoUdation  or  multipHcation  of 
State  railway  facilities  with  even  a  pretence  of  constitutionality. 
Such  Federal  action  is  hardly  within  the  range  of  possibilities,  for 
another  method  exists  by  which  Congress  could  effectuate  its  purpose 
in  the  event  of  such  emergency,  and  that  is  by  the  construction  of  a 
Federal  railway. 

There  can  be  no  doubt  but  that  if  the  Northern  Securities  Company 
had  been  organized  in  the  State  of  Minnesota  for  the  purpose,  under 
legislative  assent,  of  owning  and  so  consolidating  railways  within  that 
State,  that  Company  could  proceed  to  the  consummation  of  its  pur- 
pose. In  his  argument  before  the  Supreme  Court  in  the  case  of  the 
United  States,  the  Attorney-General  was  asked  by  one  of  the  Justices 
whether  if  a  company  like  the  Northern  Securities  Company  in  its 
avowed  purpose  had  the  legislative  sanction  of  the  State  whose  railways 
it  sought  to  acquire,  such  acquisition  could  be  held  to  violate  the 
Federal  Anti-Trust  Law.  The  Attorney-General  answered  that  under 
those  circumstances  it  could  be  held  to  violate  that  law  if  the  declared 
purpose  of  Congress  in  respect  to  interstate  commerce  would  thereby 
be  interfered  with.  The  answer  obviously  resolved  itself  into  a  nega- 
tive, for  the  declared  purpose  of  Congress  in  respect  to  interstate 
commerce  could  not  in  a  legal  sense  be  interfered  with  by  the  consoUda- 
tion under  State  Law  of  State  railways.  And  so  perhaps  the  Attorney- 
General  intended  to  imply. 

These  considerations,  if  correct,  must  go  far  to  ameliorate  those 
conditions  of  hardship  which  it  has  been  said  must  surely  follow  on 
the  decision  against  the  mergers  in  the  Northern  Securities  Case. 
For  if  the  Merger  is  held  not  to  be  void  as  a  violation  of  the  Anti-Trust 
LaAv,  but  void  only  on  fundamental  considerations  of  State  autonomy, 
then  that  large  class  of  consolidations  and  combinations,  to  whose 
creation  the  State,  whose  territory  embraces  the  property  rights 
affected  has  assented,  wUl  be  safe  from  attack. 

It  will  be  a  radical  step  for  the  Supreme  Court  to  assent  to  the 
proposition  that  because  the  mere  fact  of  ownership,  w^hether  by 
an  individual  or  by  that  association  of  individuals  which  is  called  a 
corporation,  carries  with  it  the  power  to  use  property  contrary  to  law, 
therefore  such  ownership  is  invalid. 

It  will  be  a  still  more  radical  step  for  that  tribunal  to  sustain  the 
right  of  one  State  within  the  Union,  in  the  development  of  its  property 
and  corporation  interests,  to  invade  the  fundamental  rights  of  another 
State  over  property  within  its  territorial  limits,  to  wreck  its  policy 


THE   POLICE   POWER  137 

in  respect  to  such  property,  and  to  render  of  no  effect  those  Police 
Powers  which  the  Court  for  a  hundred  years  has  exalted  above  the 
Constitution  itself. 


THE    PROGRESSIVENESS    OF   THE    UNITED    STATES 
SUPREME   COURT 

By  Charles  Warren,  Assistant  United  States  Attorney-General 

(From  the  Columbia  Law  Review,  April,  1913) 

During  the  past  two  years,  there  has  been  much  agitation  directed 
against  the  Supreme  Court  of  the  United  States,  frequent  reference 
to  "judicial  oligarchy,"  "usurpation"  and  the  like,  and  demands 
for  fundamental  changes  in  the  judicial  system  under  the  constitutions, 
not  only  of  the  States  but  of  the  United  States.  An  evil  is  alleged  to 
have  grown  up  requiring  radical  measures  for  its  correction  —  an  evil 
consisting  in  the  supposed  tendency  of  the  National  Supreme  Court 
to  invalidate  by  its  decisions  the  liberal  and  progressive  State  legisla- 
tion of  the  day. 

There  is  grave  danger  that  through  constant  iteration  the  truth  of 
this  charge  will  be  assumed,  and  that  the  discussion  will  be  confined 
to  the  form  of  remedy  needed. 

The  Bar  of  this  country  has  too  long  neglected  its  duty  in  allowing 
this  charge  to  take  root  in  the  minds  of  laymen,  swayed  by  unanswered 
articles  in  popular  magazines  and  by  uninstructed  orators  on  the 
stump.  Unless  the  Bar  and  the  law  reviews  set  the  real  facts  con- 
stantly before  the  people,  a  complete  misconception  of  our  greatest 
Court  may  prevail  to  the  detriment  of  its  influence  and  of  its  powers. 
The  falsity  of  the  charge  is  easily  to  be  proved. 

The  reformers  who  claim  that  the  Court  stands  as  an  obstacle  to 
"social  justice"  legislation,  if  asked  to  specify  where  they  find  the 
evil  of  which  they  complain  and  for  which  they  propose  radical  rem- 
edies, always  take  refuge  in  the  single  case  of  Lochner  vs.  New  York 
decided  by  the  United  States  Supreme  Court  in  1905,  in  which  the 
Court  held  unconstitutional  the  bakers'  lo-hour  day  law  of  New  York.^ 

Yet  a  single  case  does  not  necessarily  prove  the  existence  of  an  evil. 
If  the  evil  is  as  serious  as  is  claimed,  it  ought  to  be  easy  to  point  out 
numerous  other  cases. 

The  years  1887  to  1911  inclusive  have  constituted  the  period  most 
productive  of  progressive  and  liberal  —  even  radical  —  social  and 
economic  legislation  in  the  United  States.  The  evil,  if  it  exists,  must 
have  grown  up  during  these  years  and  should  appear  in  the  decisions 

1  Lochner  vs.  New  York  (1905)  198  U.S.  45. 


138  THE   POLICE  POWER 

of  the  Supreme  Court  of  the  United  States  in  cases  arising  under  the 
"due  process"  and  "equal  protection  of  the  law"  clauses  of  the  Four- 
teenth Amendment ;  for  under  those  clauses  practically  all  State 
legislation  of  this  kind  can,  sooner  or  later,  be  brought  before  that 
Court. 

The  records  show  that  between  these  years  —  iSSytoigii  inclusive ^ 

—  the  United  States  Supreme  Court  rendered  over  560  decisions  based 
on  these  clauses  of  the  Federal  Constitution  and  involving  the  validity 
of  State  statutes  or  other  form  of  State  action.^  Examination  of 
these  560  cases  conclusively  proves  that  the  alleged  evil  in  the  trend 
of  the  Court  is  a  purely  fancied  one ;  for  out  of  these  560  there  are 
only  two  cases  (other  than  the  Lochner  Case)  in  which  any  State  law, 
involving  a  social  or  economic  question  of  the  kind  included  under 
the  phrase  "social  justice"  legislation,  has  been  held  unconstitutional 
by  the  Supreme  Court.  One  of  these  two  possible  exceptions  is  the 
Connolly  Case^  in  which  the  Court,  in  1902,  held  invalid  an  Illinois 
anti-trust  law  because  it  illegally  discriminated  in  favor  of  certain 
classes ;  the  other  exception  is  a  case  of  minor  importance  —  the 
Allgeyer  Case^  —  in  which,  in  1897,  a  Louisiana  law  depriving  citizens 
of  the  right  to  order  insurance  by  mail  from  foreign  insurance  com- 
panies was  held  invalid  as  an  interference  with  liberty  of  contract. 
Even  if  it  be  assumed  that  all  three  of  these  exceptional  cases  were 
wrongly  decided  —  three  cases  out  of  560  —  yet  any  court,  or  any 
official  body  —  executive  or  legislative  —  which  on  any  particular 
subject  makes  only  three  mistakes  in  twenty-five  years,  certainly  has 
a  remarkable  record.  Even  the  People  themselves,  in  their  referen- 
dums  or  recalls,  might  easily  err  once  every  eight  years. 

The  National  Supreme  Court,  so  far  from  being  reactionary,  has 
been  steady  and  consistent  in  upholding  all  State  legislation  of  a  pro- 
gressive type.  When  this  fact  is  once  firmly  grasped,  it  becomes 
clear  that  there  is  no  necessity  for  the  introduction  of  the  new  remedy 

—  recall  of  judicial  decisions  —  or  for  its  application  to  decisions  of 
State  courts  on  questions  involving  the  "police  power"  or  "social 
justice."  For  if  any  State  court  be  found  reactionary  or  inclined  to 
deny  the  constitutionality  of  State  laws  on  social  or  economic  matters, 
a  very  simple  remedy  is  at  hand  —  the  enactment  of  a  single  change  in 
the  Federal  Judiciary  Act,  a  change  urged  by  many  lawyers  and  Bar 
Associations.  The  Supreme  Court  is  now  confined  to  passing  on  only 
those  State  statutes  whose  validity  under  the  Federal  Constitution 
a  State  court  has  upheld.  If  that  Act  shall  be  amended  so  as  to  provide 
that  an  appeal  may  be  taken  to  the  United  States  Supreme  Court 

1  United  States  Supreme  Court  Reports,  Volumes  123  to  222  inclusive. 

2  In  the  nineteen  j'ears  pre\-ious — 1868  to  1886  —  there  were  only  46  cases  decided 
under  the  same  clauses. 

3  Connolly  vs.  Union  Sewer  Pipe  Co.  (igo2)  184  U.S.  540. 
*  Allgeyer  vs.  Louisiana  (1897)  165  U.S.  578. 


THE   POLICE   POWER  139 

on  a  decision  of  a  State  highest  court  denying  the  constitutionality 
of  a  State  statute,  the  people  of  this  country  can,  by  that  very  slight 
change  enacted  by  Congress,  be  fully  protected  against  any  reactionary 
State  courts  (if  such  exist) ;  and  practically  every  State  statute  in- 
volving great  social  or  economic  questions  can  then  be  quickly  and 
finally  passed  upon  by  the  Supreme  Court  of  the  Nation,  whose  pro- 
gressiveness  cannot  be  denied. 

The  following  synopsis  of  State  legislation  upheld  by  the  Supreme 
Court  during  the  past  twenty-five  years  is  the  best  proof  of  its  success 
in  dealing  with  the  new  and  advancing  conditions  of  modern  sociologi- 
cal, economical  and  business  life.  Lawyers  and  laymen  alike  may  well 
refresh  their  memory  with  the  actual  record.^ 

Labor  Legislation 

The  Supreme  Court  has  upheld  every  State  labor  statute  brought 
before  it  under  these  clauses  of  the  Constitution  (with  the  single  ex- 
ception of  the  New  York  lo-hour  labor  law)  as  follows : 

Wages,  Etc. 

8-hour  day  law  of  Utah,  for  miners  (1898) ;  Arkansas  law  requiring 
payment  of  all  unpaid  wages  to  railroad  employees  when  discharged 
(1899) ;  Tennessee  law  requiring  redemption  in  money  of  store  orders, 
etc.,  given  to  employees  for  wages  (1902) ;  Illinois  coal  mining  classi- 
fication, coal  miner's  liability,  and  coal  mine  inspection  law  (1901) 
(1907) ;  Kansas  8-hour  law  for  labor  on  public  works  (1903) ;  Ohio 
mechanics'  lien  law  (1904) ;  8-hour  law  for  women  of  Oregon  (1908) ; 
Arkansas  law  preventing  contracting  for  wages  on  basis  of  screened  coal 
mined  (1909) ;  full  train-crew  law  of  Arkansas  (1901);  Iowa  law  forbid- 
ding railroads  to  deduct  insurance  benefits  from  the  wages  due  employees 
for  injury  (191 1).^ 

Employees^  Injuries 

The  Supreme  Court  has  upheld  every  State  statute  brought  before 
it  abrogating  or  modifying  the  fellow-servant   doctrine  —  i.e.,  the 

1  This  synopsis  includes  only  cases  appealed  under  the  clauses  of  the  Fourteenth  Amend- 
ment. There  are  of  course  many  State  statutes  of  a  similar  nature  which  have  been  con- 
sidered by  the  Court  in  cases  involving  only  the  question  whether  the  statute  was  or  was 
not  repugnant  to  the  Federal  jurisdiction  over  interstate  commerce.  Such  cases  will  show 
an  equal  progressiveness  on  the  part  of  the  Court  —  the  only  statutes  of  this  nature  which 
have  not  been  sustained  being  those  which  were  a  direct  interference  with  the  powers  of  the 
Federal  Government  over  such  commerce.  The  dates  given  in  the  text  are  dates  of  actual 
rendering  of  decisions,  not  dates  of  enactment  of  the  legislation. 

^Holden  vs.  Hardy  (1898)  169  U.S.  366;  St.  Louis  etc.  R.R.  vs.  Paul  (1899)  173  U.S. 
404;  Knoxville  Iron  Co.  vs.  Harbison  (1901)  183  U.S.  13;  Consolidated  Coal  Co.  vs.  Illinois 
(1902)  185  U.S.  203;  Wilmington  Star  Min.  Co.  vs.  Fulton  (1907)  205  U.S.  60;  Atkin  vs. 
Kansas  (1903)  191  U.S. 207  ;  Great  Southern  etc.  Co.  vs.  Jones  (1904)  193  U.S.  532  ;  Muller 
vs.  Oregon  (1908)  208  U.S.  412;  McLean  vs.  Arkansas  (1909)  211  U.S.  539;  Chicago  etc. 
R.R.  vs.  .\rkansas  (1911)  219  U.S.  453;   C.  B.  &  Q.  R.R.  vs.  McGuire  (1911)  219  U.S.  549. 


I40  THE   POLICE   POWER 

outworn  doctrine  that  an  employee  could  not  recover  damages  for 
injuries  due  to  the  negligence  of  a  fellow-employee,  as  follows  : 

Laws  abrogating  or  modifying  the  fellow-servant  doctrine  on  rail- 
roads in  Iowa  (1888) ;  in  Minnesota  (1S88) ;  in  Kansas  (1895) ;  in 
Indiana  (1899)  (1910) ;  in  Mississippi  (1911);  in  Iowa  (1911);  in 
Arkansas  (191 1) ;  general  abrogation  of  fellow-servant  rule  of  Minne- 
sota (1905).^ 

Anti-trust  Legislation 

The  Supreme  Court  has  upheld  every  State  anti-trust  law  brought 
before  it  under  these  clauses  of  the  Constitution  with  one  exception 
(Illinois  1902),  and  that  exception  was  due  simply  to  the  fact  that  the 
Illinois  act  unconstitutionally  discriminated  in  its  application  between 
different  classes  of  persons.  The  following  laws  have  been  sus- 
tained : 

Anti-railroad  consolidation  law  of  Kentucky  (1896) ;  anti-trust 
laws  of  Texas  (1905)  (1909),  of  Kansas  (1905),  of  Arkansas  (1909),  of 
Mississippi  (1910),  of  Tennessee  (1910) ;  combination  law  of  Wiscon- 
sin (1904) ;  law  of  Iowa  against  combinations  fixing  rates  (1905) ; 
anti-railroad  consolidation  act  of  Minnesota  (1896).^ 

Laws  regulating  Sales  of  Pure  Food  and  other  Merchandise 
AND  Conduct  of  Mercantile  Business 

The  Supreme  Court  has  upheld  every  law  regulating  sales  of  pure 
food  and  other  merchandise  and  restricting  conduct  of  mercantile 
business,  as  follows : 

Oleomargarine  laws  of  Pennsylvania  (1888),  of  Massachusetts 
(1894),  of  Ohio  (1902) ;  pure  food  laws  of  Ohio  (1903),  of  New  York 
(1904) ;  sanitary  milk  law  of  New  York  (1905)  (1906) ;  law  of  New 
Jersey  restricting  oyster  dredging  (1907) ;  law  requiring  paint  labels 
to  show  ingredients,  of  North  Dakota  (1907) ;  inspection  fertilizers 
law  of  North  Carolina  (1898) ;  laws  of  Connecticut  (1909)  and  Michi- 
gan (19 10)  forbidding  sales  of  merchandise  in  bulk  without  notice  to 
creditors ;  law  of  Oklahoma  forbidding  sale  of  certain  illuminating 
fluids  (1909) ;  cold  storage  law  of  Illinois  (1909) ;  Arkansas  law  for- 
bidding drumming  or  soliciting  business  on  railway  trains  (1910) ; 

>  Mo.  Pac.  Ry.  vs.  Mackey  (1888)  127  U.S.  205;  Minn.  etc.  R.R.  vs.  Herrick  (r888)  127 
U.S.  210 ;  Chicago  etc.  R.R.  vs.  Pontius  (1895)  157  U.S.  209 ;  Tullis  vs.  Lake  Erie  etc.  R.R. 
(1899)  175  U.S.  348;  Louisville  &  N.  R.R.  vs.  Melton  (1910)  218  U.S.  36;  Mobile  etc.  R.R. 
vs.  Turnipseed  (igio)  219  U.S.  35;  C.  B.  &  Q.  R.R.  vs.  McGuire  (1911)  219  U.S.  549; 
Aluminum  Co.  vs.  Ramsey  (1911)  222  U.S.  251 ;  Minn.  Iron  Co.  vs.  Kline  (1905)  199  U.S.  593. 

2  Louisville  &  N.  R.R.  vs.  Kentucky  (1896)  161  U.S.  677;  National  Cofton  Oil  Co.  vs. 
Texas  (1905)  197  U.S.  115  ;  Waters-Pierce  Oil  Co.  vs.  Texas  (1909)  212  U.S.  86;  Smiley  vs. 
Kansas  (1905)  196  L^.S.  447;  Hammond  Packing  Co.  vs.  Arkansas  (1909)  212  U.S.  322; 
Grenada  Lumber  Co.  vs.  Mississippi  (1910)  217  U.S.  433;  Standard  Oil  Co.  of  Ky.  vs. 
Tennessee  (1910)  217  U.S.  413;  Aiken  vs.  Wisconsin  (1904)  195  U.S.  194;  Carroll  vs.  Green- 
wich Ins.  Co.  (1905)  199  U.S.  401;  Pearsall  vs.  Great  No.  R.R.  (1896)  161  U.S.  646. 


THE  POLICE  POWER  141 

Louisiana  law  restricting  private  markets  (1S91) ;  Louisiana  law  re- 
quiring gaugers  on  coal  and  coke  boats  (1895)  J  ^^.w  of  New  York 
forbidding  pumping  out  natural  mineral  springs  (191 1) ;  District  of 
Columbia  law  forbidding  gift  and  trading-stamp  enterprises  (191 1); 
Missouri  law  regulating  weight  of  grain,  seed  and  hay  and  forbidding 
deductions  (191 1) ;  fish  and  game  restriction  laws  of  New  York  (1894) 
(1909),  of  Connecticut  (1896).^ 

Gambling  Legislation 

The  Supreme  Court  has  upheld  every  State  gambling,  bucket  shop, 
and  anti-grain-option  law  brought  before  it,  as  follows : 

lUinois  law  against  dealing  in  options  in  grain,  etc.  (1902) ;  Cali- 
fornia sales  on  margin  law  (1903) ;  gaming  instrument  and  policy  law 
of  New  York  (1904) ;  California  gambling  law  (1905) ;  Ohio  law  im- 
posing liability  on  owner  of  building  used  for  gambling  (1905) ;  bucket- 
shop  law  of  North  CaroHna  (1906) ;  Missouri  law  taxing  sale  of  grain, 
stock,  etc.  for  future  delivery  (191 1).^ 

Liquor  and  Cigarette  Legislation 

The  Supreme  Court  has  upheld  State  liquor,  prohibition,  license 
and  local  option  laws  and  anti-cigarette  laws  as  follows : 

The  prohibition  law  of  Kansas  (1887) ;  the  liquor  laws  abating  dis- 
tilleries as  a  nuisance,  of  Iowa  (1888)  (1889) ;  the  liquor  license  laws 
of  California  (1890),  of  Alabama  (1908) ;  liquor  laws  of  Texas 
(1893),  of  Nebraska  (1892),  of  Ohio  (1900) ;  local  option  laws  of  Texas 

(1904)  (1906),  of  Ohio  (1904) ;  sales  of  liquor  to  women,  of  Colorado 
(1904) ;  transfer  of  liquor  license  in  Massachusetts  (1907) ;  Illinois 
ordinance  against  sale  of  cigarettes  (1900) ;  laws  against  sale  of 
cigarettes,  of  Tennessee  (1900),  of  Iowa  (1905) ;  law  of  Virginia  revok- 
ing charter  of  a  club  for  illegal  liquor  sales  (1908).^ 

1  Powell  vs.  Pennsylvania  (1888)  127  U.S.  678;  Plumley  vs.  Massachusetts  (18Q4)  155 
U.S.  461;  Capital  City  Dairy  Co.  vs.  Ohio  (1Q02)  183  U.S.  238;  Arbuckle  vs.  Blackburn 
(1903)  191  U.S.  406 ;  Crossman  vs.  Lurman  (1904)  192  U.S.  189 ;  New  York  vs.  Van  DeCarr 

(1905)  199  U.S.  552  ;  St.  John  vs.  New  York  (1906)  201  U.S.  633  ;  Lee  vs.  New  Jersey  (1907) 
207  U.S.  67  ;  Heath  Co.  vs.  Voist  (1907)  207  U.S.  338;  Patapsco  Guano  Co.  vs.  North  Caro- 
lina (1898)  171  U.S.  345;  Lemieux  vs.  Young  (1909)  211  U.S.  489;  North  American  Cold 
Storage  Co.  vs.  Chicago  (1909)  211  U^.S.  306;  Waters-Pierce  Co.  vs.  DeSelms  (1909)  212  U.S. 
159;  Williams  vs.  Arkansas  (1910)  217  U.S.  79;  Natal  vs.  Louisiana  (1891)  139  I'.S.  621 ; 
Pittsburgh  etc.  Coal  Co.  vs.  Louisiana  (1895)  156  U.S.  590;  Lindsley  vs.  Natural  Carbonic 
Gas  Co.  (1911)  220  U.S.  61;  Sperrj'  etc.  Co.  vs.  Rhodes  (1911)  220  U.S.  502;  House  vs. 
Mayes  (191 1)  219  U.S.  270:  Lawton  vs.  Steele  (1899)  152  U.S.  133 ;  New  York  vs.  Hester- 
berg  (1909)  211  U.S.  31 ;    Geer  vs.  Connecticut  (1896)  161  U.S.  519. 

2  Booth  vs.  Illinois  (1902)  184  U.S.  425  ;  Otis  vs.  Parker  (1903)  187  U.S.  606;  Adams  vs. 
New  York  (1904)  192  U.S.  585;  Ah  Sin  vs.  Wittman  (1905)  198  U.S.  500;  Marvin 
vs.  Tront  (1905)  199  U.S.  212;  Gatewood  vs.  North  Carolina  (1906)  203  U.S.  531 ;  Brodnax 
vs.  Missouri  (191 1)  219  U.S.  285. 

3  Mugler  vs.  Kansas  (1887)  123  U.S.  623;  Kidd  vs.  Pearson  (1888)  128  U.S.  i ;  Eilen- 
becker  vs.  Plymouth  County  District  (1890)  134  U.S.  31;  Crawley  vs.  Christiansen  (1890) 
137  U.S.  86;    Phillips  vs.  Mobile  (1908)  208  U.S.  472;    Giozza  ?5.'Tiernan  (1893)  148  U.S. 


142  THE  POLICE  POWER 

Cattle  Legislation 

The  Supreme  Court  has  upheld  State  statutes  regulating  the  cattle 
industry  and  cattle  diseases  as  follows : 

Iowa  law  fixing  absolute  liability  on  all  persons  having  Texas 
cattle  and  spreading  Texas  fever  (1889) ;  Utah  Act  for  damages  to 
highway  by  driving  animals  (1897) ;  live  stock  sanitary  commission 
and  cattle  quarantine  law  of  Texas  (1901) ;  Colorado  cattle  disease  law 
(1902) ;  Idaho  law  of  liability  for  damages  by  sheep  grazing  within 
two  miles  of  a  house  (1907).^ 

Laws  restricting  Freedom  of  Contract  and  Action  in 
Individuals 

In  addition  to  the  foregoing,  the  Supreme  Court  has  sustained 
State  statutes  brought  before  it  regulating  the  exercise  of  personal, 
social  or  economic  rights  —  i.e.,  Hmiting  or  regulating  an  individual's 
liberty  of  contract  or  of  action,  or  of  conduct  of  business  in  behalf 
of  the  general  welfare  of  the  community.  A  single  exception  to  its 
uniform  upholding  of  such  laws  was  the  statute  of  Louisiana  restricting 
rights  of  owners  of  cotton  to  use  the  mail  to  obtain  insurance  in  foreign 
insurance  corporations.^ 

The  following  regulative  legislation  has  been  upheld : 
West  Virginia  act  licensing  physicians  (1889) ;  Connecticut  druggist 
license  act  (1895) ;  registration  of  physicians  acts  of  Michigan  (1903), 
of  Maryland  (1910) ;  carrying  concealed  weapons  law  of  Texas  (1894) ; 
Massachusetts  law  requiring  license  for  speaking  in  public  places 
(1897) ;  Utah  ordinance  as  to  moving  buildings  on  public  streets 
(1899) :  Indiana  law  prohibiting  waste  in  flow  of  gas  and  oil  (1900)  ; 
Louisiana  ordinance  lixing  geographical  limits  for  houses  of  ill  fame 
(1900) ;  Minnesota  barber  shop  law  (1900) ;  alimony  law  of  New  York 
(1901) ;  lunacy  law  of  Alabama  (1901) ;  Louisiana  quarantine  law 
(1902) ;  Missouri  law  fixing  limits  for  cow  stables  (1904) ;  compulsory 
vaccination  law  of  Massachusetts  (1905) ;  laws  granting  exclusive 
right  to  dispose  of  garbage,  of  California  (1905),  of  Michigan  (1905) ; 
California  law  requiring  keepers  of  places  of  amusement  to  admit  all 

657;  Mette  vs.  McGuckin  (1885)  18  Neb.  323,  aff.  (1892)  149  U.S.  781;  Reyman  Bre\vii:i^ 
Co.  vs.  Brister  (1900)  179  U.S.  445  ;  Rippey  vs.  Texas  (1904)  193  U.S.  504;  Ohio  vs.  Dolli- 
son  (1904)  194  U.S.  445  ;  Cronin  vs.  Adams  (1904)  192  U.S.  108;  Cox  vs.  Texas  (1906)  202 
U.  S.  446;  Tracy  vs.  Ginzberg  (1907)  205  U.S.  170;  Gundliiig  ii.?.  Chicago  (1900)  177  U.S. 
183;  Austin  vs.  Tennessee  (1900)  179  U.S.  343;  Hodge  vs.  Muscatine  County  (1905)  196 
U.S.  276;  Cook  vs.  Marshall  County  (1905)  196  U.S.  261 ;  Cosmopolitan  Club  vs.  Virginia 
(1908)  208  U.S.  378. 

'  Kimmish  vs.  Ball  (1889)  129  U.S.  217  ;  Jones  vs.  Brim  (1897)  165  U.S.  180;  Smith  vs. 
St.  Louis  etc.  R.R.  (1901)  181  U.S.  248;  Reid  vs.  Colorado  (1902)  187  U.S.  137;  Bacon  vs. 
Walker  (1907)  204  U.S.  311;   Bown  vs.  Walling  (1907)  204  U.S.  320. 

'  Allgeyer  vs.  Louisiana  (1897)  165  U.S.  578. 


THE   POLICE  POWER  143 

ticket  holders  (1907) ;  law  against  use  of  flag  for  advertising  purposes, 
of  Nebraska  (1907) ;  law  of  Arkansas  requiring  negotiable  instrument 
taken  in  payment  for  sale  of  patented  article  to  state  on  face  for  what 
it  was  given  (1907) ;  Massachusetts  laws  restricting  height  of  buildings 
(1903)  (1909) ;  Connecticut  law  forbidding  loans  for  more  than  15% 
(1910) ;  California  law  restricting  burials  in  city  (1909) ;  Minnesota 
law  imposing  double  damages  on  trespassers  on  State  lumber  lands 
(1910) ;  New  York  law  forbidding  advertising  on  street  vehicles 
(191 1) ;  New  York  law  forbidding  unauthorized  use  of  portraits  for 
advertising  (191 1);  Massachusetts  law  regulating  assignments  of 
wages  (191 1)  ;  Illinois  law  imposing  liability  for  damages  from  riots 
on  municipalities  (191 1) ;  Texas  law  restricting  pilots  (1909).^ 

Regulation  of  Railroads  and  Railroad  Rates 

The  Supreme  Court  has  upheld  State  statutes  regulating  railroads 
rates  and  the  management  of  railroads,  as  follows : 

Rates 

The  railroad  rate  acts  of  Arkansas  (1888)  (1895),  of  Georgia  (1888), 
of  Michigan  (1892),  of  South  Dakota  (1900);  long  and  short  haul 
railroad  commission  law  of  Kentucky  (1902) ;  rates  of  Minnesota 
(1902) ;  freight  rates,  of  Florida  (1906)  ;  grain  rates  of  Mississippi 
(1906) ;  school  children  half-fare  law  of  Massachusetts  (i9o7).2 

General  Management 

Law  of  Alabama  forbidding  employment  of  color-blind  persons  and 
requiring  railroads  to  pay  examination  fees  (188S) ;    law  of  Iowa 

"Dent  vs.  West  Virginia  (i88g)  i2g  U.S.  114;  Gray  vs.  Connecticut  (1895)  159  U.S" 
74;  Reetz  vs.  Michigan  (1903)  188  U.S.  505;  Watson  vs.  Maryland  (1910)  218  U.S.  173; 
Miller  vs.  Texas  (1894)  153  U.S.  535  ;  Davis  vs.  Massachusetts  (1S97)  167  U.S.  43 ;  Wilson 
vs.  Eureka  City  (1899)  173  U.S.  32;  Ohio  Oil  Co.  vs.  Indiana  (1900)  177  U.S.  190;  L'Hote 
vs.  New  Orleans  {1900)  177  U.S.  587 ;  Petit  vs.  Minnesota  (1900)  177  U.S.  164;  Lynde  vs. 
Lynde  (1901)  181  U.S.  183;  Simon  w.  Craft  (1901)  182  U.S.  427;  Compagnie  Francaise  w. 
State  Board  of  Health  (1902)  186  U.S.  380;  Fischer  vs.  St.  Louis  (1904)  194  U.S.  361; 
Jacobson  vs.  Massachusetts  (1905)  197  U.S.  11;  CaHfornia  Reduction  Co.  vs.  Sanitary 
Reduction  Works  (1905)  199  U.S.  306;  Gardner  vs.  Michigan  (1905)  199  U.S.  325  ;  Western 
Turf  Ass'n  vs.  Greenbergcr  (1907)  204  U.S.  359;  Halter  vs.  Nebraska  (1907)  20S  U.S.  34; 
Osan  Lumber  Co.  vs.  Union  County  (1907)  207  U.S.  201 ;  Welch  vs.  Swasey  (1909)  214  U.S. 
91;  Griffiths.  Connecticut  (1910)  218  U.S.  563;  Kick!  t'i.  Musselman  Grocer  Co.  (1910) 
217  U.S.  461 ;  Laurel  Hill  Cemetery  vs.  San  Francisco  (1910)  216  U.S.  35S;  Sherwin  Car- 
penter Co.  vs.  Minnesota  (1910)  218  U.S.  57;  Re  Gregory  (1911)  219  U.S.  210;  Fifth  Ave. 
Coach  Co.  vs.  New  York  (191 1)  221  U.S.  467  ;  Mutual  Loan  Co.  vs.  Martell  (1911)  222  U.S. 
225;   Chicago  vs.  Sturgis  (1911)  222  U.S.  313;   Olsen  vs.  Smith  (1904)  195  U.S.  332. 

2Dow  w.  Beidelman  (1888)  125  U.S.  680;  Georgia  R.R.  vs.  Smith  (1888)  128  U.S.  174; 
Chicago  etc.  R.R.  vs.  Wellman  (1892)  143  U.S.  339  ;  Chicago  etc.  R.R.  vs.  Tompkins  (1900) 
176  U.S.  167  ;  St.  Louis  R.R,  vs.  Gill  (1895)  156  U.S.  649;  Louisville  &  N.  R.R.  vs.  Ken- 
tucky (1902)  183  U.S.  503;  Minneapolis  etc.  R.R.  vs.  Minnesota  (1902)  186  U.S.  257;  Sea- 
board Air  Line  R.R.  vs.  Florida  (1906)  203  U.S.  261;  Alabama  &  Vicksburg  R.R.  vs. 
Mississippi  (1906)  203  U.S.  496;  Interstate  Consol.  St.  Ry.  vs.  Massachusetts  (1907)  207 
U.S.  79. 


144  THE  POLICE  POWER 

fixing  double  damages  for  cattle  killed  on  railroads  neglecting  to  fence 
(1889) ;  law  of  Minnesota  fixing  treble  damages  for  failure  to  fence 
tracks  (1893)  ;  Georgia  law  stopping  freight  trains  on  Sunday  (1896)  ; 
Missouri  and  Kansas  laws  imposing  liability  for  fire  from  locomotives 
(1897)  (1899) ;  Minnesota  law  requiring  trains  to  stop  at  county 
seats  (1897) ;  New  York  law  forbidding  heating  of  cars  by  stoves 
(1897) ;  Illinois  law  requiring  flags,  gates,  etc.  at  crossings  (1897) ; 
Arkansas  law  requiring  railroads  to  pay  all  unpaid  wages  to  employees 
when  discharged  (1899) ;  Ohio  law  requiring  trains  to  stop  at  stations 
of  over  3,000  inhabitants  (1899) ;  Kansas  city  ordinance  as  to  speed 
of  trains  (1900) ;  Minnesota  law  requiring  track  connections  of  inter- 
secting roads  (1900) ;  Nebraska  law  fixing  absolute  liability  on  rail- 
roads for  injuries  to  passengers  (1902) ;  Michigan  law  as  to  safety 
appliances  on  railroad  crossings  (1903) ;  Minnesota  law  requiring  es- 
tablishment of  stations  (1904) ;  Texas  law  penalizing  railroads  for 
allowing  Johnson  grass  or  Russian  thistle  to  go  to  seed  (1904) ;  order 
requiring  connecting  trains,  of  North  Carolina  (1907) ;  requiring  rail- 
roads to  adjust  claims  for  damage  to  shipments  within  40  days,  of 
South  Carolina  (1907) ;  Kansas  law  requiring  certain  trains  to  run 
(1909) ;  Mississippi  order  to  operate  spur  tracks  (190S) ;  Minnesota 
law  requiring  railroad  to  construct  bridge  over  street  (1909).^ 

Corporation  Rates 

The  Supreme  Court  has  upheld  statutes  fixing  or  regulating  rates 
for  public  service  corporations,  other  than  railroads,  as  follows : 

New  York  law  regulating  charges  of  grain  elevators  (1892) ;  North 
Dakota  grain  warehouse  act  (1894) ;  reasonableness  of  water  rates 
of  California  (1899)  (1900)  (1903)  (1904) ;  water  rates  of  Illinois 
(190 1) ;  forfeiture  of  charter  of  waterworks  company  for  illegal  rates 
by  Louisiana  court  (1902) ;  telephone  rate  law  of  California  (1909) ; 
gas  rates  of  New  York  (1909) ;  water  rates  of  Tennessee  (1903)  (1909). ^ 

1  Nashville  etc.  R.R.  vs.  Alabama  (1888)  128  U.S.  96;  Minneapolis  etc.  R.R.  vs.  Beck- 
with  (i88g)  129  U.S.  26;  Minneapolis  etc.  R.R.  vs.  Emmons  (1893)  149  U.S.  364;  Hen- 
nington  vs.  Georgia  (1896)  163  U.S.  299;  St.  Louis  etc.  R.R.  vs.  Mathews  (1897)  165  U.S. 
I ;  A.  T.  &  S.  F.  R.R.  vs.  Matthews  (1899)  174  U.S.  96;  Gladson  vs.  Minnesota  (1897)  166 
U.S.  427  ;  N.  Y.,  N.  H.  &  H.  R.R.  vs.  New  York  (1897)  165  U.S.  628 ;  C.  B.  &  Q.  R.R.  vs. 
Chicago  (1897)  166  U.S.  226;  St.  Louis  etc.  R.R.  vs.  Paul  (1899)  173  U.S.  404;  Lake 
Shore  etc.  R.R.  vs.  Ohio  {1899)  173  L^.S.  285;  Erb  vs.  Morasch  (1900)  177  U.S.  584;  Wis- 
consin etc.  R.R.  vs.  Jacobson  (1900)  179  U.S.  287  ;  Chicago  etc.  R.R.  vs.  Zernecke  (1902) 
183  U.S.  582;  Detroit  etc.  R.R.  vs.  Osborn  (1903)  189  U.S.  383;  Minneapolis  etc.  R.R. 
vs.  Minnesota  (1904)  193  U.S.  53;  Missouri  etc.  R.R.  vs.  May  (1904)  194  U.S.  267;  Atlan- 
tic Coast  Line  R.R.  vs.  North  Carolina  (1907)  206  U.S.  i;  Seaboard  Air  Line  R.R.  vs. 
Seeger  (1907)  207  U.S.  73;  Missouri  Pacific  R.R.  vs.  Kansas  (1910)  216  U.S.  262;  Mobile 
etc.  R.R.  vs.  Mississippi  (1908)  210  U.S.  187;  St.  Paul  etc.  R.R.  vs.  Minnesota  (1909)  214 
U.S.  497. 

2  Budd  vs.  New  York  (1892)  143  U.S.  517  ;  Brass  vs.  North  Dakota  (1894)  153  U.S.  391 ; 
San  Diego  Land  Co.  vs.  National  City  (1899)  174  U.S.  739;  Osborn  vs.  San  Diego  etc.  Co. 
(1900)  178  U.S.  22;  San  Diego  Land  Co.  vs.  Jasper  (1903)  189  U.S.  439;  Stanislaus  County 


THE  POLICE  POWER  145 

Regulation  of  Banks 

The  Supreme  Court  has  upheld  every  State  banking  regulation 
statute  brought  before  it,  as  follows  : 

Bank  guaranty  fund  laws  of  Oklahoma,  Kansas  and  Nebraska 
(191 1);  Massachusetts  law  forfeiting  to  the  State  unclaimed  bank 
deposits  (1911) ;  New  York  law  licensing  private  bankers  (1911).^ 

Regulation  of  Insurance  and  Telegraph  Corporations 

The  Supreme  Court  has  upheld  State  statutes  regulating  the  business 
and  methods  of  insurance  and  telegraph  companies,  as  follows : 

Missouri  act  compelling  insurance  companies  to  pay  the  full  amount 
for  which  property  was  insured,  in  case  of  total  loss  (1899) ;  Missouri 
non-forf citable  policy  law  (1900) ;  acts  abolishing  defense  of  false  rep- 
resentations by  insurers  unless  willful  and  connected  with  the  loss,  of 
Ohio  (1901),  of  Missouri  (1906) ;  acts  forbidding  insurance  agents 
from  effecting  insurance  in  unauthorized  foreign  companies,  of  Cali- 
fornia (1895),  of  Massachusetts  (1902);  Texas  act  imposing  12% 
additional  damage  and  attorneys'  fees  on  life  and  health  companies 
failing  to  pay  loss  within  specified  time  (1902) ;  Nebraska  valued 
policy  law,  and  act  allowing  attorneys'  fees  (1903) ;  Missouri  act 
excluding  suicide  as  a  defense  on  life  insurance  policies  (1907) ;  Ala- 
bama act  compelling  insurance  companies  entering  into  any  rate- 
fixing  association  to  pay  to  insured  additional  25%  of  loss  (1911) ; 
Georgia  law  as  to  diligence  in  delivery  of  telegrams  (1896) ;  Michigan 
law  forbidding  telegraph  companies  to  limit  liability  for  negligent 
failure  to  deliver  (1910) ;  New  York  law  for  reorganization  of  an 
insurance  association  (1907) ;  Kentucky  law  withdrawing  license  of 
any  foreign  insurance  company  removing  case  to  Federal  courts 
(1906)  .2 

vs.  Irrigation  Co.  (1904)  192  U.S.  210;  Freeport  Water  Co.  vs.  Freeport  (1901)  180  U.S. 
587  ;  New  Orleans  Water  Works  Co.  vs.  Louisiana  (1902)  185  U.S.  336;  Home  Tel.  &  Tel. 
Co.  vs.  Los  Angeles  (1909)  211  U.S.  265;  Wilcox  vs.  Consol.  Gas  Co.  (1909)  212  U.S.  19; 
Knoxville  Water  Co.  vs.  Knoxville  (1903)  189  U.S.  434;  Knoxville  vs.  Knoxville  Water  Co. 
(1909)  212  U.S.  I. 

>  Noble  State  Bank  vs.  Haskell  (191 1)  219  U.S.  104;  Shallenberger  vs.  First  State  Bank 
(1911)  219  U.S.  114;  Assaria  State  Bank  vs.  Dolley  (1911)  219  U.S.  121 ;  Providence  Inst, 
for  Savings  vs.  Malone  (191 1)  221  U.S.  660;   Engel  vs.  O'Malley  (191 1)  219  U.S.  128. 

2  New  York  Life  Ins.  Co.  vs.  Cravens  (1900)  178  U.S.  389;  Orient  Ins.  Co.  vs.  Daggs 
(1899)  172  U.S.  557;  John  Hancock  Life  Ins.  Co.  vs.  Warren  (1901)  181  L^.S.  73;  N.  W. 
Life  Ins.  Co.  vs.  Riggs  (1906)  203  U.S.  243;  Hooper  vs.  California  (1895)  155  U.S.  648; 
Nutting  vs.  Massachusetts  (1902)  183  U.S.  553;  F'idelity  Mut.  Life  Ins.  Co.  vs.  Mettler 
{1902)  185  U.S.  308  ;  Iowa  Life  Ins.  Co.  vs.  Lewis  (1902)  187  U.S.  335  ;  Farmers  Ins.  Co  vs. 
Dobney  (1903)  189  U.S.  301 ;  Whitfield  vs.  Aetna  Life  Ins.  Co.  (1907)  205  U.S.  489;  Ger- 
man .VUiance  Ins.  Co.  vs.  Hale  (1911)  219  U.S.  307;  W.  U.  Tel.  Co.  vs.  James  (1896)  162 
U.S.  650;  W.  U.  Tel.  Co.  vs.  Com.  Milling  Co.  (1910)  218  U.S.  406;  Security  Mut.  Life 
Ins.  Co.  vs.  Prewitt  (1906)  202  U.S.  246;  Polk  vs.  ]VIut.  etc.  Ass'n  (1907)  207  U.S.  310;  see 
also  W.  U.  Tel.  Co.  vs.  New  Hope  (1903)  187  U.S.  419;  Postal  Tel.  Co.  vs.  New  Hope  (1904) 
192  U.S.  55. 


146  THE  POLICE  POWER 

Public  Improvements 

The  Supreme  Court  has  upheld  State  statutes  authorizing  under- 
takings of  a  public  nature  such  as  drainage,  levees,  grade  crossings  and 
irrigation  ;  and  it  has  uniformly  held  that  such  improvements,  even  if 
interfering  with  private  property,  were  within  the  police  power  of 
the  State : 

Public  dam  acts  of  Wisconsin  (1891)  and  Minnesota  (1897) ;  im- 
proved waterway  tolls  act  of  Michigan  (1887) ;  Pennsylvania  railroad 
construction  act  (1894) ;  Connecticut  grade-crossing  act  (1894) ; 
District  of  Columbia  land  drainage  law  (1897) ;  Louisiana  levee  act 
(1895)  ;  Massachusetts  swamp  drainage  act  (1895) ;  California  irriga- 
tion ditch  act  (1897) ;  Ohio  act  changing  street  grades  (1897) ;  street 
obstruction  ordinance  of  Virginia  (1898);  Connecticut  act  assessing 
certain  towns  for  cost  of  bridge  (1898) ;  Minnesota  log  lien  act  (1900)  ; 
forest  preserve  act  of  New  York  (1900) ;  New  York  grade-crossing  act 
(1900) ;  construction  of  waterworks  act  of  New  York  (1902) ;  drainage 
act  of  Louisiana  (1905) ;  purchase  of  waterworks  act  of  Massachusetts 
(1909) ;  mill  flowage  acts  of  Massachusetts  (1906) ;  South  Carolina 
dam  act  (1905) ;  wharf  act  of  Oregon  (1906) ;  Utah  eminent  domain 
law,  allowing  condemnation  of  right  of  way  across  placer  claims  for 
aerial  bucket  (1906) ;  Utah  law  allowing  condemnation  of  land  for 
irrigation  (1905) ;  New  York  law  for  erection  of  \daduct  in  city  street 
without  compensation  to  abutters  (1907) ;  Connecticut  law  allowing 
railroads  owning  three-cjuarters  of  stock  of  other  railroads  to  condemn 
remaining  shares  (1906) ;  New  Jersey  law  against  diverting  water  into 
another  State  (1908) ;  Virginia  law  allowing  railroads  to  condemn  land 
for  spur  track  to  a  private  industry  (1908) ;  Pittsburgh  and  Alleghany 
consolidation  law  of  Pennsylvania  (1907) ;  nominal  damages  for  land 
on  bed  of  navigable  stream,  of  New  York  (1911).^ 

Taxation  Laws 

Besides  the  above  statutes,  there  have  been  over  one  hundred  State 
laws  relating  to  taxation  brovight  before  the  United  States  Supreme 
Court  in  cases  appealed  under  the  "due  process"  and  "equal  protec- 

'  Kaukama  etc.  Co.  vs.  Greenberg  etc.  Co.  (iSgi)  142  U.S.  254:  St.  Anthony  etc.  Co. 
vs.  Board  (1897)  168  U.S.  349;  Sands  vs.  Manistee  River  Imp.  Co.  (1SS7)  123  U.S.  288; 
Marchant  vs.  Penn.  R.R.  Co.  (1894)  153  U.S.  380;  Bauman  vs.  Ross  (1897)  167  U.S.  548; 
Eldredge  vs.  Trezevant  (1895)  160  U.S.  452 ;  N.  Y.  &  N.  E.  R.R.  Co.  vs.  Bristol  (1894)  151 
U.S.  556;  Sweet  vs.  Rechel  (1895)  159  U.S.  380;  Fall  Brook  Irrigation  District  vs.  Bradley 

(1897)  164  U.S.  112;  Wabash  R.R.  vs.  Defiance  (1897)  167  U.S.  88;   Meyer  vs.  Richmond 

(1898)  172  U.S.  82;  Williams  i'5.  Eggleston  (1898)  170  U.S.  304;  Lindsey  etc.  Co.  m.  Mullen 
(1900)  176  U.S.  126;  Adirondacks  Ry.  Co.  vs.  New  York  (1900)  176  U.S.  335;  Newbury- 
port  Water  Co.  vs.  Newburyport  (1904)  193  U.S.  561 ;  Wheeler  vs.  N.  Y.  N.  H.  &  H.  R.R. 
(1900)  178  U.S.  321;  Skaneateles  Water  Co.  vs.  Skaneateles  (1902)  184  U.  S.  354;  New 
Orleans  Gas  Light  Co.  vs.  N.  O.  Drainage  Com.  (1905)  197  U.S.  453;  Otis  Co.  vs.  Ludlow 
Mfg.  Co.  (1906)  201  U.S.  140;  Manigault  vs.  Springs  (1905)  199  U.S.  473;  Mead  vs.  Port- 


THE   POLICE  POWER  147 

tion  of  the  laws"  clauses  of  the  Constitution.  With  the  exceptions 
hereinafter  noted,  the  Court  has  upheld  every  variety  of  tax  law,  as 
follows : 

Corporation  and  franchise  taxes, ^  inheritance  and  legacy  taxes,^ 
license  taxes, ^  railroad  taxation,^  street  and  sewer  betterment  assess- 

land  (igo6)  200  U.  S.  148;  Strickley  vs.  Highland  Boy  Gold  Min.  Co.  (1906)  200  U.S.  527; 
Clark  vs.  Nash  (1905)  198  U.S.  361 ;  Sauer  vs.  New  York  (1907)  206  U.  S.  536;  Offield  vs. 
N.  Y.,  N.  H.  &  H.  R.R.  (1906)  203  U.S.  372;  Hudson  County  Water  Co.  vs.  McCarter 
(1908)  209  U.S.  349;  Hairston  OT.  Danville  etc.  R.R.  Co.  (1908)  208  U.S.  598;  Hunters. 
Pittsburg  (1907)  207  U.S.  161;    Appleby  vs.  Buffalo  (1911)  221  U.S.  524. 

1  New  York  bank  tax  and  corporation  tax,  Palmer  vs.  McMahon  (1890)  133  U.S.  660, 
Home  Ins.  Co.  vs.  New  York  (i8go)  134  U.S.  594;  Missouri,  Ohio,  Kentucky  and  Indiana 
express  company  tax  acts.  Pacific  Express  Co.  vs.  Seibert  (1892)  142  U.S.  339,  Adams  Ex- 
press Co.  vs.  Ohio  (1897)  165  U.S.  194,  Adams  Express  Co.  vs.  Kentucky  (1897)  166  U.S. 
171,  American  Express  Co.  vs.  Indiana  (1897)  165  U.S.  255;  Indiana  telegraph  company 
tax,  W.  U.  Tel.  Co.  vs.  Indiana  (1897)  165  U.S.  304;  State  Bank  tax  of  Pennsylvania,  Mer- 
chants etc.  Bank  vs.  Penpsylvania  (1S97)  167  U.S.  461;  foreign  corporation  tax  acts  of 
Pennsylvania  and  New  York,  Pembina  Silver  Min.  Co.  vs.  Pennsylvania  (1888)  125  U.S. 
181,  New  York  vs.  Roberts  (1898)  171  U.S.  658;  Kentucky  bridge  corporation  tax,  Hender- 
son Bridge  Co.  vs.  Henderson  (1899)  173  U.S.  592:  Connecticut  corporation  tax.  Travelers 
Ins.  Co.  vs.  Connecticut  (1902)  185  U.S.  364;  Kentucky  franchise  tax,  Coulter  vs.  Louisville 
&  N.  R.R.  (1905)  196  U.S.  599;  insurance  company  credit  tax  of  Louisiana,  Met.  Life  Ins. 
Co.  115.  New  Orleans  (1007)  205  U.S.  395,  Board  vs.  N.  Y.  Life  Ins.  Co.  (1910)  216  U.S.  517; 
Louisiana  tax  on  premiums  and  notes  due  foreign  insurance  companies,  Liverpool  etc.  Ins. 
Co.  w.  Board  (191 1)  221  U.S.  346;  New  York  franchise  ta.x,  N.  Y.  C.  R.R.  w.  Miller  (igo6) 
202  U.S.  584;  Ohio  consolidation  of  railroads  tax,  Ashley  vs.  Ryan  (1894)  153  U.S.  436; 
Indiana  telegraph  company  tax,  \V.  U.  Tel.  Co.  vs.  Taggart  (1896)  163  U.S.  i;  Kentucky 
bank  tax,  Citizens  National  Bank  vs.  Kentucky  (1910)  217  U.S.  443,  Citizens  Sav.  Bank  vs. 
Owensboro  (1899)  173  U.S.  636 ;  Colorado  refrigerator  car  tax,  Amer.  etc.  Co.  vs.  Hall  (1899) 
174  U.S.  70.     See  also  note  4  infra. 

2  Magoun  vs.  Illinois  Trust  &  Savings  Bank  (189S)  170  U.S.  283 ;  Billings  vs.  Illinois 
(1903)  188  U.S.  97;  Blackstone  vs.  Miller  (1903)  188  U.S.  189;  Campbell  vs.  California 
(1906)  200  U.S.  87;  Chanler  vs.  Kelsey  (1907)  205  U.S.  466;  Beers  vs.  Glynn  (1909)  211 
U.S.  477  ;   Cahen  vs.  Brewster  (1906)  203  U.S.  543. 

See  also  Scudder  vs.  Coler  (1899)  175  U.S.  32;  Orr  vs.  Oilman  (1902)  183  U.S.  278; 
Board  of  Education  vs.  Illinois  (1906)  203  U.S.  553  ;   Moffitt  vs.  Kelley  (1910)  218  U.S.  400. 

'Dog  valuation  law  of  Louisiana,  Sentell  vs.  N.  O.  etc.  R.R.  Co.  (1897)  166  U.S.  698; 
license  tax  of  Georgia  on  emigrant  agents,  Ficklen  vs.  Shelby  County  (1892)  145  U.S.  i, 
Williams  vs.  Fears  (1900)  179  U.S.  270;  Louisiana  tax  on  sugar  refiners,  Amer.  Sugar  Ref. 
Co.  vs.  Louisiana  (1900)  179  U.S.  89;  Minnesota  tax  on  elevators  and  warehouses,  Cargill 
Co.  vs.  Minnesota  (1901)  180  U.  S.  452;  classified  merchants  license  tax  of  Pennsylvania, 
Clark  115.  Titusville  (1902)  184  U.S.  329 ;  merchants'  tax  of  Tennessee,  .'^mer.  Steel  &  Wire 
Co.  vs.  Speed  (1904)  192  U.S.  500;  non-resident  meat  packer  tax  of  Georgia  and  North 
Carolina,  Kehrer  vs.  Stewart  (1905)  197  U.S.  60,  Armour  Packing  Co.  vs.  Lacy  (1906)  200 
U.S.  226;  Texas  license  tax  on  wholesale  dealers  in  oils,  S.  W.  Oil  Co.  vs.  Texas  (1910)  217 
U.S.  114;  Kentucky  license  tax  on  distillers,  Brown  Forman  Co.  vs.  Kentucky  (1910)  217 
U.S.  563,  Thompson  vs.  Kentucky  (1908)  209  U.S.  340. 

*  Taxing  railroads  for  salary  of  State  railroad  commissioners  in  South  Carolina  and 
New  York,  Charlotte  etc.  R.R.  vs.  Gibbes  (1892)  142  U.S.  386,  New  York  Electric  Lines  vs. 
Squire  (1892)  145  U.S.  175  ;  Georgia  Railroad  tax  law,  Columbus  Ry.  Co.  vs.  Wright  (1894) 
151  U.S.  470;  imposing  cost  of  repairs  and  maintenance  of  safe  viaduct  on  railroads  in 
Nebraska,  C.  B.  &  Q.  R.R.  vs.  Nebraska  (1898)  170  U.S.  57  ;  railroad  grade-crossing  law  of 
New  York,  Wheeler  vs.  N.  Y.,  N.  H.  &  H.  R.R.  (1900)  17S  U.S.  321 ;  Florida  act  assessing 
back  taxes  on  railroads,  F'lorida  etc.  R.R.  vs.  Reynolds  (1902)  183  U.S.  471 ;  Alabama  tax 
on  foreign  railroad  slock,  Kidd  vs.  Alabama  (1903)  188  U.S.  730;  street  railway  tax  of 
Georgia,  Savannah  Ry.  v.  Savannah  (1905)  19S  U.S.  392;  Illinois  laws  imposing  on  rail- 
roads cost  of  removing  and  rebuilding  bridges  and  removing  tunnel,  C.  B.  &  ().  R.R.  vs. 
Illinois  (1906)  200  U.S.  561,  West  Chicago  Street  R.R.  vs.  Illinois  {1906)  201  U.S.  506; 
street  railway  franchise  tax  of  New  York,  New  York  vs.  State  Board  (1905)  199  U-S.  i ; 
Indiana  law  imposing  cost  of  bridge  on  railroad,  Cincinnati  etc.  Ry.  vs.  Connersville  (1910) 
218  U.S.  336;  Indiana  railroad  tax,  Pittsburg  etc.  R.R.  vs.  Backus  (1894)  154  U.S.  421; 


148  THE  POLICE  POWER 

ments,^  and  general  property  taxes.^ 

The  Court  has  also  upheld,  under  these  same  clauses  of  the  Con- 
stitution, a  large  number  of  cases  involving  State  statutory  civil  and 
criminal  court  procedure,  and  general  political  rights.''' 

Now,  as  pointed  out  above,  notwithstanding  this  mass  of  cases  ap- 
pealed and  decided  under  the  Fourteenth  Amendment,  in  which  cases 
parties  have  sought  to  overthrow  State  laws  —  over  560  in  number 
between  1887  and  191 1  — it  is  remarkable  that  the  Court  has  held 
unconstitutional  only  three  State  statutes  dealing  with  general  social  or 
economic  conditions,  i.e.,  "social  justice"  laws.  In  addition,  it  is 
true,  it  has  held  unconstitutional  several  instances  of  State  legislation 
or  of  State  action  which  involved  simply  private  rights  of  property,  i.e., 
questions  of  illegal  taxation  and  of  other  forms  of  actual  taking  of 

Michigan  railroad  tax,  Michigan  Central  R.R.  Co.  vs.  Powers  (1906)  201  U.S.  245  ;  Nebraska 
railroad  tax,  C.  B.  &  Q.  R.R.  vs.  Babcock  (1907)  204  U.S.  585  ;  Kentucky  railway  franchise, 
Illinois  etc.  R.  R.  vs.  Kentucky  (1910)  218  U.S.  551. 

iWalston  vs.  Nevin  (1888)  128  U.S.  578;  Essex  Public  Road  Board  vs.  Skinkle  (1891) 
140  U.S.  334;  Paulsen  vs.  Portland  (1893)  149  U.S.  30;  Parsons  vs.  Dist.  of  Col.  (1898) 
170  U.S.  45  ;  Weyerhauser  vs.  Minnesota  (1900)  176  U.S.  550;  Lombard  t'5.  West  Chicago 
Park  Com.  (1901)  181  U.S.  33  ;  French  vs.  Barber  Asphalt  Paving  Co.  (1901)  181  U.S.  324, 
and  7  following  cases:  Cass  Farm  Co.  vs.  Detroit  (1901)  181  U.S.  396;  Voight  vs.  Detroit 
(1902)  184  U.S.  lis;  Goodrich  vs.  Detroit  (1902)  184  U.S.  432;  King  vs.  Portland  (1902) 
184  U.S.  61 ;  Chadwick  vs.  Kelly  (1903)  187  U.S.  540 ;  Schaefer  vs.  Werling  (1903)  188  U.S. 
516;  Seattle  vs.  Kelleher  (1904)  195  U.S.  351 ;  Louisville  &  N.  R.R.  vs.  Barber  Asphalt  Co. 
(1905)  197  U.S.  430;  Briscoe  vs.  Rudolph  (1911)  221  U.S.  547 ;  Carson  vs.  Brockton  (1901) 
182  U.S.  398;  Hibben  w.  Smith  (1903)  191  U.S.  310;  Cleveland  etc.  R.R.  vs.  Porter  (1908) 
210  U.S.  177. 

2  Pennsylvania  tax  law.  Bell's  Gap  R.R.  vs.  Pennsylvania  (1890)  134  U.S.  232 ;  mortgage 
tax  laws  of  Oregon  and  New  York,  Savings  etc.  Society  vs.  Multnomah  County  (1898)  169 
L^.S.  421,  Paddell  vs.  New  York  (1908)  211  U.S.  446;  laws  forfeiting  land  for  unpaid  taxes, 
of  West  Virginia  and  Kentucky,  King  vs.  Mullins  (1898)  171  L'.S.  404,  Kentucky  Union  Co. 
vs.  Kentucky  (1911)  219  U.S.  140;  Minnesota  and  Louisiana  taxes  on  investments  by  a 
non-resident,  Bristol  vs.  Washington  County  (1900)  177  U.S.  133,  New  Orleans  vs.  Stempel 

(1899)  175  U.S.  309;  Pennsylvania  tax  on  estates  of  absentees,  Cunnius  vs.  Reading  School 
District  (1905)  198  U.S.  458;  Maryland  tax  on  non-resident  stockholders,  Corry  vs.  Balti- 
more (1905)  196  U.S.  466;  Maryland  tax  on  liquors  in  warehouses,  Carstairs  vs.  Cochran 
(1904)  193  U.S.  10;  Ohio  tax  on  bonds  deposited  by  insurance  companies,  Scottish  Ins.  Co. 
vs.  Boland  (1905)  196  U.S.  611 ;  New  York  stock  transfer  act,  New  York  vs.  Reardon  (1907) 
204  U.S.  152 ;  Kentucky  tax  on  ocean-going  steamships.  Southern  Pacific  Co.  vs.  Kentucky 
(1911)  222  U.S.  63;  Louisiana  tax  on  credits  on  collateral  security  loans.  State  Board  vs. 
Comptoir  National  D'Escompte  (1903)  191  U.S.  388;  levee  tax  law  of  Arkansas,  Ballard 
vs.  Hunter  (1907)  204  U.S.  241. 

'  For  a  few  of  the  statutes  of  more  general  interest  see,  claims  of  foreign  corporations  as 
creditors  law  of  Tennessee,  Blake  vs.  McClung  (1898)  172  LT.S.  239  ;  Massachusetts  attach- 
ment law,  Rothschild  vs.  Knight  (1902)  184  U.S.  334;  Maryland  insolvent  law.  Brown  vs. 
Smart  (1892)  145  U.S.  454;  trustee  process  law  of  Rhode  Island,  King  vs.  Cross  (1S99)  175 
U.S.  396;    non-resident  mortgagee  claims  law  of  Tennessee,  Sully  vs.  Amer.  Nat.  Bank 

(1900)  178  U.S.  289;  Maine  disseizin  law,  Soper  vs.  Lawrence  Bros.  Co.  (1906)  201  U.S. 
359;  corporation  act  of  West  Mrginia,  St.  Mar>''s  etc.  Co.  vs.  West  Virginia  (1906)  203 
U.S.  183 ;  California  law  for  quieting  title,  .Amer.  Land  Company  vs.  Zeiss  (191 1)  219  U.S. 
47  ;  Massachusetts  absentee  estate  act,  Blinn  vs.  Nelson  (191 1)  222  U.S.  i ;  registration  of 
voters  in  classified  cities  of  Missouri,  Mason  vs.  Missouri  (1900)  179  U.S.  328;  city  annexa- 
tion act  of  Kansas,  Clark  vs.  Kansas  City  (1900)  176  U.S.  114;  incorporation  of  a  city,  of 
Texas,  Lampasas  vs.  Bell  (1901)  180  U.S.  276;  new  school  district  of  Michigan,  Kils  w. 
Lowrey  (1905)  199  U.S.  233 ;  negro  segregation  laws  of  Louisiana,  Georgia,  Kentucky, 
Plessy  vs.  Ferguson  (1896)  163  U.S.  537,  Gumming  vs.  Board  of  Education  (1899)  175  Lf.S. 
528,  Berea  College  vs.  Kentucky  (1908)  211  U.S.  45,  Williams  vs.  Mississippi  (1S98)  170 
U.S.  213,  ChUes  vs.  C.  &  O.  R.R.  (1910)  218  U.S.  71- 


THE  POLICE  POWER  149 

private  property  without  compensation.  No  one  claims,  however,  that 
the  recall  of  judicial  decisions  or  other  radical  remedies  should  be  ap- 
plied to  court  decisions  which  simply  adjudicate  private  property  rights. 

Even  in  cases  of  this  nature,  the  Court  has  held  State  laws  or 
State  action  unconstitutional  and  void  in  only  34  instances  during 
the  past  25  years,  as  follows : 

One  street  assessment  tax  act ;  ^  six  acts  authorizing  taxes,  court 
judgments  or  disposition  of  property  without  hearing  or  reasonable 
notice  to  property  owners ;  ^  one  act  regarding  enforcement  of  mort- 
gages ;  ^  eight  acts  taxing  property  outside  the  jurisdiction  of  the  State ;  ■* 
four  tax  acts  imposing  unlawful  discriminations  or  denying  equal  pro- 
tection of  the  law  ;  ^  five  requirements  of  unreasonably  low  and  con- 
fiscatory rates  or  tolls  in  Minnesota,  Texas,  Kentucky,  Nebraska  and 
Pennsylvania ;  ^  one  Minnesota  railroad  rate  law,  held  invalid  for  ex- 
cessive penalties  and  for  failure  to  provide  for  a  hearing ;  ^  and  seven 
laws  depriving  corporations  of  their  property  without  compensation, 
as  follows :  a  Nebraska  order  of  a  Board  requiring  a  railroad  to  allow 
persons  to  erect  an  elevator  on  its  property  (1896) ;  a  Texas  constitu- 
tion depriving  a  railroad  of  a  vested  right  (1898) ;  a  Michigan  law 
requiring  a  railroad  to  issue  and  accept  interchangeable  mileage  tickets 
with  other  roads  (1899) ;  a  California  ordinance  forbidding  the 
erection  of  gas  w^orks  previously  authorized  (1904) ;  an  Ohio  ordinance 
granting  property  of  one  street  railway  to  another  (1907) ;  a  Kentucky 
law  requiring  a  railroad  to  deliver  its  cars  to  other  roads  (1909) ; 
a  Nebraska  law  compelling  construction  of  side  tracks,  etc.,  to  private 
grain  elevators,  without  a  hearing  (1910) ;  ^   and  one  law  of  Texas 

1  Norwood  vs.  Baker  (189S)  172  U.S.  269. 

2  Scott  vs.  McNeal  (1894)  154  U.S.  34;  Roller  vs.  Holly  (1900)  176  U.S.  398;  Central 
of  Georgia  R.R.  vs.  Wright  (1907)  207  U.S.  127;  Londoner  vs.  Denver  (1908)  210  U.S. 
373 ;  National  Exchange  Bank  vs.  Wiley  (1904)  195  U.S.  257 ;  Old  Wayne  Mutual  Life 
Ass'n  vs.  McDonough  (1907)  204  U.S.  8. 

*  Bradley  vs.  Lightcap  {1904)  195  U.S.  i. 

*  Dewey  vs.  Des  Moines  (1898)  173  U.S.  193;    Louisville  etc.  Ferry  Co.  vs.  Kentucky 

(1903)  188  U.S.  385;  Union  Refrigerator  Transit  Co.  vs.  Kentucky  (1905)  199  U.  S.  194; 
Fargo  vs.  Hart  (1904)  193  U.S.  490;  Delaware  etc.  R.R.  vs.  Pennsylvania  (1905)  198  U.S. 
341;  Selliger  w.  Kentucky  (1909)  213  U.S.  200;  Buck  Di.  Beach  (1907)  206  U.S.  392 ;  New 
Orleans  vs.  New  York  Life  Ins.  Co.  (1910)  216  U.S.  517. 

'^  Cotting  vs.  Kansas  City  Stockyards  Co.  (1901)  183  U.S.  79;  Raymond  vs.  Chicago 
etc.  Co.  (1907)  207  U.S.  20;  Southern  Ry.  Co.  vs.  Greene  (1910)  216  U.S.  400;  Stearns  vs. 
Minnesota  (1900)  179  U.S.  223;  see  also  Duluth  etc.  R.R.  vs.  St.  Louis  County  (1900)  179 
U.S.  302. 

'  Chicago  etc.  Ry.  Co.  vs.  Minnesota  (1890)  134  U.S.  418;  Reagan  vs.  Farmers  Loan  & 
Trust  Co.  (1892)  I.S4  U.S.  362;  Reagan  vs.  Mercantile  Trust  Co.  (1894)  154  U.S.  413; 
Covington  Turnpike  Co.  vs.  Sandford  (1896)  164  U.S.  578;  Smyth  vs.  Ames  (1898)  169 
U.S.  466 ;  see  also  Prout  vs.  Starr  (1903)  188  U.S.  537  ;   Postal  Tel.  Cable  Co.  vs.  New  Hope 

(1904)  192  U.S.  55. 

^  E.v  parte  Young  (igo8)  209  U.S.  123. 

*  Missouri  Pacific  Ry.  Co.  vs.  Nebraska  (1896)  164  U.S.  403;  Houston  vs.  T.  C.  R.R. 
(1898)  170  U.S.  243;  Lake  Shore  etc.  Ry.  vs.  Smith  (1899)  173  U.S.  684;  Dobbins  vs.  Los 
Angeles  (1904)  195  U.S.  223  ;  Cleveland  etc.  Ry.  vs.  Cleveland  (1907)  204  U.S.  116;  Louis- 
ville &  N.  R.R.  D5.  Central  Stockyards  Co.  (1909)  212  U.S.  132;  Missouri  Pacific  Ry.  Co. 
vs.  Nebraska  (1910)  217  U.S.  196. 


I50  THE   POLICE   POWER 

requiring  railroads  losing  suit  to  pay  attorney's  fees  was  held  to 
deny  equal  protection  of  the  law  (1897).^ 

It  thus  appears  that,  out  of  over  560  State  statutes  or  other  form  of 
State  action  adjudicated  upon  under  the  "due  process"  and  "equal 
protection"  clauses  during  the  last  twenty-five  years,  the  Court  has 
upheld  over  530;  it  has  held  nvalid  only  three  relating  to  'social 
justice,"  and  only  thirty-four  relating  to  private  rights  of  property.^ 

The  actual  record  of  the  Court  thus  shows  how  little  chance  a  litigant 
has  of  inducing  the  Court  to  restrict  the  police  power  of  a  State,  or  to 
overthrow  State  laws  under  the  "due  process"  clause ;  in  other  words, 
it  shows  the  Court  to  be  a  bulwark  to  the  State  police  power,  not  a 
destroyer.  And  while  its  actual  record  proves  the  responsiveness  of 
the  Court  to  the  changing  needs  of  the  times,  the  words  of  its  justices 
are  quite  as  illuminating  and  encouraging.  The  modern  attitude  of 
the  Court  was  well  expressed  by  Judge  Harlan  in  one  of  its  late  de- 
cisions, in  191 1,  in  which  he  said:  ^ 

Among  the  powers  of  the  State  not  surrendered  is  the  power  to  so  regu- 
late the  relative  rights  and  duties  of  all  within  its  jurisdiction  as  to  guard 
the  public  morals,  the  public  safety  and  the  public  health,  as  well  as  to 
promote  the  public  convenience  and  the  common  good ;  and  that  it  is  with 
the  State  to  devise  the  means  to  be  employed  to  such  ends,  taking  care 
always  that  the  means  devised  do  not  go  beyond  the  necessities  of  the  case, 
have  some  real  or  substantial  relation  to  the  objects  to  be  accomplished, 
and  are  not  inconsistent  with  its  own  Constitution  or  the  Constitution  of 
the  United  States. 

It  has  frequently  been  asserted  by  State  courts  and  by  law  writers 
that  the  scope  of  the  "police  power"  is  confined  to  matters  of  public 
morals,  public  health  and  public  safety.     Such  a  restriction,  however, 

1  Gulf  etc.  Ry.  vs.  Ellis  (1897)  165  U.S.  150. 

*  It  may  be  fair  to  add  that  the  following  acts  were  also  attacked  as  repugnant  to  the 
Fourteenth  Amendment  and  were  held  unconstitutional;  but  the  Court's  decisions  were 
based  chiefly  upon  the  ground  that  the  acts  were  repugnant  to  the  Federal  powers  over 
interstate  commerce,  i4s.,  tax  laws  of  Kansas  and  Arkansas  in  W.  U.  Tel.  Co.  vs.  Kansas 
(1910)  216  U.S.  I,  Pullman  Car  Co.  vs.  Kansas  (1910)  216  U.S.  56,  Ludwig  vs.  W.  U.  Tel. 
Co.  (igio)  216  U.S.  146;  natural  gas  law  of  Oklahoma,  Oklahoma  vs.  Kansas  Natural  Gas 
Co.  (191 1)  221  U.S.  229;  or  as  being  repugnant  to  the  impairment  of  obligation  of  contract 
clause  of  the  Constitution,  viz.,  New  York  elevated  railroad  act,  Muhlker  vs.  N.  Y.  &  H. 
R.R.  Co.  (1905)  197  U.S.  544;  railroad  profit  law  of  Indiana,  Terre  Haute  etc.  R.R.  vs. 
Indiana  (1903)  194  U.S.  579. 

In  one  case  the  Court  held  invalid  an  order  of  the  Kentucky  railroad  commission,  fixing 
a  general  tariff  of  railroad  rates,  but  only  because  it  exceded  its  statutory  authority,  and 
not  because  the  statute  was  deemed  unconstitutional :  see  Silver  vs.  Louisville  &  N.  R.R. 
(1909)  213  U.S.  175. 

In  an  Illinois  gas  rate  case,  Peoria  Gas  Co.  vs.  Peoria  (1906)  200  U.S.  98,  the  Court 
granted  a  temporary  injunction,  but  did  not  decide  whether  the  rates  were  confiscatory  under 
the  Fourteenth  Amendment,  referring  the  case  to  a  master  to  find  the  facts;  so  also  in  a 
Virginia  railroad  rate  case,  Prentiss  m.  Atlantic  Coast  Line  Co.  (1908)  211  U.S.  210,  the  Court 
merely  held  that  it  had  jurisdiction,  but  did  not  invahdate  the  rates.  In  Amer.  Sugar 
Ref.  Co.  vs.  New  Orleans  (1900)  181  U.S.  277,  the  Court  upheld  its  jurisdiction,  but  did 
not  decide  on  the  validity  of  the  tax  involved. 

3  House  vs.  Mayes  (191 1)  219  U.S.  270. 


THE  POLICE   POWER  151 

finds  no  warrant  in  the  late  decisions  of  the  Supreme  Court,  for,  as 
Judge  Harlan  said  in  1906  :  ^ 

We  hold  that  the  pohce  power  of  a  State  embraces  regulations  designed     ^ 
to  promote  the  public  convenience  or  the  general  properly  as  well  as  regulations 
designed  to  promote  the  public  health,  the  public  morals  or  the  public  safety. 

The  criterion  of  the  State's  power  is  the  public  welfare  as  viewed  by 
the  Legislature,  for  as  said  by  Judge  Hughes  in  igii :  ^ 

The  right  to  make  contracts  ...  is  subject  also  in  the  field  of  State 
action  to  the  essential  authority  of  government  to  maintain  peace  and 
security  and  to  enact  laws  for  the  promotion  of  the  health,  safety,  morals 
and  welfare  of  those  subject  to  its  jurisdiction. 

And  Judge  Holmes  in  191 1  expresses  the  same  view : ' 

It  may  be  said  in  a  general  way  that  the  police  power  extends  to  all  the 
great  public  needs.  It  may  be  put  forth  in  aid  of  what  is  sanctioned  by 
usage  or  held  by  the  prevailing  morality  of  strong  and  preponderant  opinion 
to  be  greatly  and  immediately  necessary  to  the  public  welfare. 

In  an  able  article  in  a  recent  law  review,  Judge  Swayze  of  New 
Jersey  says :  ■* 

The  interpolation  of  the  word  "welfare"  in  addition  to  the  words  health, 
safety  and  morals,  seems  hkely  to  have  important  results. 

It  is  apparent,  however,  from  the  whole  trend  of  its  recent  opinions 
that  the  Court  itself  does  not  regard  the  addition  of  this  word  "wel- 
fare" as  an  "interpolation"  or  as  the  introduction  of  any  change 
in  the  law  which  it  had  previously  laid  down.  Thus  Judge  Holmes, 
in  his  opinion  on  the  petition  for  rehearing  of  the  Oklahoma  bank 
guaranty  case,^  says,  with  reference  to  his  prior  decision : 

The  analysis  of  the  police  power,  whether  correct  or  not,  was  intended 
to  indicate  an  interpretation  of  what  has  taken  place  in  the  past,  not  to 
give  a  new  or  wider  scope  to  the  power. 

and  Judge  McKenna  had  already  said  in  1907,^  referring  to  a  previous 
case: 

In  that  case,  we  rejected  the  view  that  the  police  power  cannot  be  exer- 
cised for  the  general  well  being  of  the  community.  That  power,  we  said, 
embraces  regulations  designed  to  promote  the  public  convenience  or  the  general 
prosperity. 

'  C.  B.  &  O.  R.R.  vs.  Illinois  (iqo6)  200  U.S.  561,  592. 

2C.  B.  &Q.  R.R.  vs.  McGuire  (191 1)  219  U.S.  549. 

'Noble  State  Bank  vs.  Haskell  (191 1)  219  U.S.  104,  no,  in. 

*  26  Harvard  Law  Review  i,  13. 

6  Noble  Slate  Bank  vs.  Haskell  (191 1)  219  U.S.  575,  580. 

*  Bacon  vs.  Walker  (1907)  204  U.S.  311,  317. 


152  THE  POLICE  POWER 

and  in  the  latest  decision  of  the  Court  on  this  subject,  January  13, 
1913,  Judge  Day  has  said,  upholding  a  city  ordinance  of  Chicago 
fixing  the  weight  of  bread  loaves :  ^ 

This  court  has  had  frequent  occasion  to  declare  that  there  is  no  absolute 
freedom  of  contract.  The  exercise  of  the  police  power  fixing  weights  and 
measures  and  standards  must  necessarily  limit  the  freedom  of  contract 
which  would  otherwise  exist.  Such  limitations  are  constantly  imposed 
upon  the  right  of  contract  freely,  because  of  restrictions  upon  that  right 
deemed  necessary  in  the  interest  of  the  general  welfare. 

In  this  connection  may  be  noticed  the  charge  —  often  refuted  but 
as  often  reasserted  —  that  the  Court  bases  its  decisions  on  its  own 
views  of  the  policy  of  a  State  law%  rather  than  on  strict  legal  doctrines. 
The  Court,  however,  has  time  and  again  announced  the  exact  contrary ; 
and  in  almost  every  decision  of  note  in  the  last  quarter  of  a  century, 
it  has  emphasized  the  point  that  it  has  no  concern  whatever  with  the 
"wisdom"  or  "policy"  of  the  legislation  construed.  Thus  Judge 
Peckham  in  the  Lochner  Case  said : 

This  is  not  a  question  of  substituting  the  judgment  of  the  Court  for  that 
of  the  Legislature.  If  the  act  be  within  the  power  of  the  State,  it  is  valid, 
although  the  judgment  of  the  Court  might  be  totally  opposed  to  the  enact- 
ment of  such  a  law. 

Judge  Harlan  said,  m  1911:^ 

Much  may  be  done  by  a  State  under  its  police  power  which  many  may 
regard  as  an  unwise  exertion  of  governmental  authority.  But  the  Federal 
courts  have  no  power  to  overturn  such  local  legislation  simply  because  they 
do  not  approve  it  or  because  they  deem  it  unwise  or  inexpedient. 

And  Judge  Holmes  said  in  the  Oklahoma  bank  case  in  1911 :  ^ 

We  fully  understand  the  practical  importance  of  the  question  and  the 
very  powerful  argument  that  can  be  made  against  the  wisdom  of  the  legis- 
lation ;  but  on  that  point  we  have  nothing  to  say,  as  it  is  not  our  concern. 

When  the  people  of  this  country  know  and  realize  the  importance 
of  these  facts  about  its  Supreme  Court,  the  present  agitation,  based 
so  largely  on  misconception,  will  die  away  ;  and  all  will  agree  with 
the  patriotic  sentiment  expressed  in  1828  by  a  paper  strongly  opposed 
in  politics  to  the  Court,  during  the  heated  States'  Rights  and  Nullifi- 
cation period  —  a  period  of  far  more  violent  agitation  against  the 
Court  than  the  present :  ^ 

1  Schmidinger  vs.  Chicago  (1013)  226  U.S.  578. 
'Brodnax  vs.  Missouri  (igii)  2ig  U.S.  285. 
'Noble  State  Bank  vs.  Haskell  (1911)  219  U.S.  575. 
■•  Niles  Register,  Jan.  19th,  1828. 


THE   POLICE   POWER  153 

Though  the  Constitutional  construction  of  this  lofty  tribunal  is  not 
wholly  conformable  to  our  humble  opinion  of  right,  we  have  often  thought 
that  no  person  could  behold  this  venerable  body  without  profound  respect 
for  the  virtue  and  talent  concentrated  on  its  bench  ;  and  with  a  great  degree 
of  confidence  that,  as  there  must  be  some  power  in  every  government  having 
final  efYect,  it  could  hardly  be  vested  anywhere  more  safely  than  in  the 
Supreme  Court  as  at  present  filled. 


A   BULWARK   TO   THE    STATE   POLICE   POWER  —  THE 
UNITED    STATES   SUPREME    COURT 

By  Charles  Warren,  Assistant  United  States 
Attorney-General 

(From  the  Columbia  Law  Review,  December,  1913) 

Court  decisions  "based  on  the  individualist  theories  of  a  century 
ago,"  says  a  recent  political  scientist,^  are  no  longer  in  harmony  with 
modern  conditions.  The  tendency  of  the  present-day  mind  is  unques- 
tionably to  tolerate  increased  restriction  of  the  indi\ddual  by  the  State, 
in  the  interest  of  the  general  public  welfare.  It  is  highly  important, 
therefore,  that  the  layman  should  comprehend  how  far  the  courts 
are  embod}dng  in  their  decisions  this  tendency. 

The  history  of  English  law  is  one  of  struggle  between  two  motives, 
a  desire  to  protect  the  rights  of  the  individual,  and  a  desire  to  extend 
the  rights  of  the  public.  Whether  at  common  law  or  under  a  written 
constitution,  a  man's  rights  of  property  or  of  action  are  limited  by 
the  correlative  rights  of  others,  on  which  he  may  not  legally  infringe. 
It  is  by  extending  the  rights  of  others,  as  individuals,  that  the  courts 
have  developed  the  common  law  of  torts ;  and  the  legislatures,  the 
statutory  law  of  torts.  It  is  by  extending  the  rights  of  others,  bonded 
together  as  the  State,  that  the  courts  have  developed  the  law  of  th-e 
State  police  power ;  and  the  legislatures,  the  criminal  law.  The 
foundation  of  the  doctrine  of  the  State  police  power  is  that  every  man 
must  hold  his  property  and  conduct  his  life  to  a  certain  reasonable 
extent  in  trust  for  the  benefit  of  the  public ;  and  that  such  a  trust,  if 
reasonable,  may  be  enforced  by  the  legislature  by  appropriate  legis- 
lation passed  under  its  general  police  power.^  What  is  reasonable  may 
vary  at  different  eras  and  under  different  conditions.  The  rights  of 
an  individual  will  vary,  therefore,  and  will  be  expanded  or  compressed 
according  to  the  extent  to  which  the  courts  shall  hold  State  legislation 

'  Moore,  Blaine  Free,  The  Supreme  Court  and  Unconstitutional  Legislation,  (igi3). 

2  Thus  Allen,  J.,  in  Com.  vs.  Gilbert  (1893)  160  Mass.  157,  says:  All  property  is 
acquired  and  held  under  the  tacit  condition  that  it  shall  not  be  so  used  as  to  destroy  or 
greatly  impair  the  public  rights  and  interests  of  the  community. 


154  THE   POLICE   POWER 

to  lie  within  or  outside  the  scope  of  the  poHce  power.  To  fix  the  line, 
beyond  which  the  legislature  cannot  go  without  infringing  on  the 
constitutional  rights  of  the  individual  is,  to-day,  one  of  the  most 
difficult  tasks  of  a  court.  For  as  a  judge  of  the  Supreme  Court, 
closely  in  sympathy  with  modern  views,  has  frequently  pointed  out, 
"  all  legal  lines  are  more  or  less  arbitrary  as  to  the  precise  place  of  their 
incidence,  although  the  distinctions  of  which  they  are  the  inevitable 
outcome  are  plain  and  undeniable."^  "Difference  of  degree  is  one 
of  the  distinctions  by  which  the  right  of  the  Legislature  to  exercise 
the  police  power  is  determined."  ^  "Any  distinction,  no  matter  how 
sensible  and  how  plain,  leads  at  last  to  a  line  which  is  worked  out  by 
the  contact  of  decisions  clustering  atound  the  opposite  poles,  and 
which  may  seem  arbitrary  if  we  attend  to  it  alone  and  not  to  the  nature 
of  the  groups  which  it  divides."^  "The  question  is  one  of  degree, 
and  sooner  or  later  we  reach  a  point  at  which  the  Constitution  applies, 
and  forbids  physical  appropriation  and  legal  restrictions  alike  unless 
they  are  paid  for."  ^ 

Where  questions  as  to  rights  depend  on  matters  of  "degree,"  and 
of  "distinction,"  it  is  of  vital  importance  to  the  individual  and  to  the 
public  to  know  in  what  direction  lies  the  general  trend  of  the  judicial 
mind. 

Under  the  present  prevailing  anti-individualism,  there  can  be  no 
doubt  that  the  test  of  the  progressiveness  of  a  court  is  the  degree  of 
remoteness  of  the  line  fixed,  within  which  the  legislature  shall  have 
scope  to  legislate  without  being  held  to  infringe  on  the  Constitution. 
Consequently,  any  court  which  recognizes  wide  and  liberal  bounds  to 
this  State  police  power  is  to  be  deemed  in  touch  with  the  temper  of 
the  times. 

Before  accepting  the  remedies  of  those  who  wish  to  reform  the  courts, 
in  order,  as  they  claim,  to  make  them  more  consonant  with  modern 
sentiments  and  conditions,  sociological  and  economic,  it  is  highly  im- 
portant to  know  the  exact  facts  as  to  the  existence  of  the  evil  or  defect, 
for  which  the  cure  is  proposed. 

In  an  article  in  the  April  number  of  the  Columbia  Law  Review,^ 
I  pointed  out  that  so  far  as  the  United  States  Supreme  Court  was  con- 
cerned, the  evil  condition  of  dissonance  did  not  exist ;  and  that  the 
Court  instead  of  being  an  obstacle  in  the  path  of  progressive  State 
legislation,  had  been  found  its  consistent  supporter,  —  at  least  in 
cases  appealed  under  the  "due  process"  and  "equal  protection' 
clauses  of  the  Constitution. 

'  Holmes,  J.,  in  Lincoln  vs.  Street  Com.  (igoo)  176  Mass.  210,  213. 
2  Holmes,  J.,  in  Hideout  vs.  Knox  (1889)  148  Mass.  368,  372. 
'Holmes,  J.,  in  Smith  vs.  American  Linen  Co.  (iSgS)  172  Mass.  227,  229. 
■•  Holmes,  J.,  in  Bent  vs.  Emery  (iSgg)  173  Mass.  495,  496. 

^13  Columbia  Law  Review,  294;  reprinted  as  Senate  Document  No.  30,  63d  Congress 
First  Session. 


THE   POLICE   POWER  155 

An  analysis  of  the  cases  showed  that  out  of  over  560  decisions 
rendered  under  those  clauses  in  the  past  twenty-five  years  (1887-igi  i), 
the  Supreme  Court  had  held  invalid  only  three  State  laws  involving 
a  social  or  economic  question  of  the  kind  included  under  the  phrase 
"Social  Justice"  legislation;  and  that  moreover  it  had  so  held  invalid 
only  thirty-four  other  State  laws  involving  questions  of  taxation  or  of 
private  property  rights.^  A  closer  analysis  will  show  that  out  of  these 
thirty-four  invalid  statutes  only  fourteen  were  passed  in  the  exercise 
of  the  State  police  power,  —  the  remaining  twenty  being  enacted  in 
the  exercise  of  the  State  taxing  power,  etc. 

In  other  words,  in  this  great  and  vitally  important  class  of  cases, 
the  Court  has  settled  the  boundary  line  which  separates  the  end  of  the 
police  power  and  the  beginning  of  the  Constitutional  guaranties,  over- 
whelmingly in  favor  of  the  State  as  against  the  individual  (the  in- 
dividual, it  may  be  noted,  being,  in  the  vast  majority  of  the  cases,  a 
corporation)." 

"Due  process"  and  the  "police  power"  both  being  indefinite  terms, 
the  Court  has  exercised  a  wide  discretion  in  enlarging  the  scope  of 
both  in  favor  of  the  State. 

There  are,  however,  two  other  clauses  of  the  Constitution  under 
which  the  extent  of  the  State  police  power  has  been  tested  by  parties 
attacking  the  vahdity  of  State  laws,  viz. :  the  "impairment  of  obliga- 
tion of  contract  "  and  the  "  regulation  of  commerce  among  the  several 
States"  clauses. 

What  has  been  the  tendency  of  the  Court  in  these  classes  of  cases  ? 

It  is  to  be  noted  that  these  constitutional  terms  are  not  as  indefinite 
or  as  incapable  of  exact  delimitation  as  the  term  "due  process."  It 
is  to  be  expected,  therefore,  that  in  attacks  on  legislation  based  on 
these  clauses,  there  would  be  less  room  for  exercise  of  discretion  by 
the  Court,  in  holding  a  statute  to  fall  on  this  or  the  other  side  of  the 
dividing  line.  It  will  be  found,  nevertheless,  that  even  in  cases 
brought  under  these  latter  clauses,  the  Court  has  a  record  substantially 
as  liberal  in  support  of  the  State  police  power,  as  in  the  other  class  of 
cases.  Therefore,  even  if  the  accusation  be  well  founded  that  there 
are  certain  State  courts  narrow  and  unprogressive  in  their  tendencies, 

^  To  the  latter  should  perhaps  be  added  one  further  case  (making  thirty-five  instead 
of  thirty-four),  Willcox  vs.  Consol.  Gas  Co.  (igoo)  212  U.S.  19,  in  which  a  comparatively 
unimportant  part  of  a  New  York  statute  was  held  invalid,  the  main  statute  being  upheld. 

2  If  the  prior  years  (i868~i886)  had  been  taken  (and  the  whole  period  of  the  decisions 
on  the  Fourteenth  Amendment  thus  included)  it  would  ha\e  been  found  that  the  Court 
in  those  years  did  not  hold  inavlid  a  single  State  law  enacted  under  the  police  power  and 
dealing  with  "social  ju.stice"  legislation,  unless  the  Chinese  laundry  act  of  California  in 
1885  and  the  negro  jury  exclusion  acts  of  West  Virginia  and  \'irginia  in  1S70,  of  Delaware 
in  1881,  and  of  Kentucky  in  188.5  can  be  so  termed,  these  laws  being  held  invalid  as  deny- 
ing the  "equal  protection  of  the  laws"  guaranteed  by  the  Constitution. 

See  Yick  Wo  vs.  Hopkins  (1885)  118  U.S.  356;  Strauder  vs.  West  Virginia  (1879)  100 
U.S.  303;  Ex  parte  Virginia  (1897)  100  U.S.  339;  Neal  vs.  Delaware  (1881)  103  U.S.  370; 
Bush  vs.  Kentucky  (1883)  107  U.S.  no. 


156  THE  POLICE  POWER 

and  prone  to  restriction  of  the  State  police  power,  the  United  States 
Supreme  Court  will  be  found  to  constitute  a  bulwark  to  that  power, 
whenever  that  Court  can  be  invoked. 

If  any  added  remedy  is  needed  to  relieve  a  State  from  a  too  timid  or 
too  conservative  State  court,  an  ample  remedy  can  be  provided  simply 
by  broadening  the  present  Federal  Judiciary  Act,  so  as  to  permit 
appeals  to  the  United  States  Supreme  Court  in  cases  where  the  State 
court  has  held  the  State  law  unconstitutional  (such  appeals  being  now 
confined  to  cases  where  the  State  court  has  upheld  the  State  law). 
Such  a  remedy  will  be  simpler,  less  revolutionary,  and,  in  view  of  the 
past  record  of  the  United  States  Supreme  Court,  fully  as  effective,  as 
radical  recall  of  judicial  decisions.^ 

The  need  of  such  an  amendment  to  the  Judiciary  Act  has  become  the 
more  imperative,  since  the  enactment  by  Congress  of  the  recent  Act 
of  March  4,  1913.^  Heretofore,  it  has  frequently  been  possible  to 
bring  the  question  of  the  constitutionality  of  a  State  law  before  the 
United  States  Supreme  Court  in  a  suit  begun  in  the  Federal  Circuit 
Court,  as  an  appeal  lay  from  the  decision  of  the  inferior  Federal 
Court  whether  such  decision  upheld  or  set  aside  the  State  law.  Under 
the  recent  act  of  Congress,  if  any  suit  is  brought  in  an  inferior  Federal 
court  involving  an  injunction  against  proceedings  under  any  State 
law  or  under  any  order  made  by  an  administrative  board  or  commission 
created  by  and  acting  under  a  State  law,  all  proceedings  to  restrain 
the  execution  of  such  statute  or  order  in  the  Federal  court  shall  be 
stayed,  if  there  shall  have  been  brought  and  be  pending  in  the  court 
of  the  State  a  suit  involving  such  State  laws.  In  view  of  this, 
fewer  cases  involving  State  statutes  will  be  likely  to  reach  the 
United  States  Supreme  Court  from  the  inferior  Federal  courts ;  and 
it  will  in  the  future  be  increasingly  difficult  to  obtain  the  opinion  6t 
that  Court  on  the  validity  of  any  State  st&fute  except  in  cases  brought 
on  writ  of  error  to  the  State  courts.  It  will  become  the  more  important 
therefore,  that  the  facility  of  appeal  from  the  State  courts  be  increased ; 
and  that  the  scope  of  such  appeal  be  extended,  so  as  to  allow  the 
United  States  Supreme  Court  to  apply  its  progressive  and  broadening 
views  to  the  construction  made  of  the  Constitution  by  any  narrow- 
minded  State  courts,  if  such  there  be. 

In  the  following  summary  of  the  attitude  of  the  United  States 
Supreme  Court  towards  the  State  police  power  in  cases  arising  under 
the  obUgation  of  contract  and  interstate  commerce  clauses  of  the 
Constitution,  a  period  of  forty  years  (1873-1912)  has  been  taken  so  as 

1  It  is  to  be  noted  that  it  is  only  in  cases  of  the  exercise  of  the  "police  power"  by  the 
State,  that  recall  of  judicial  decisions  is  advocated.  See  Ransom,  Majority  Rule  and  the 
Judiciary  (igi2),  p.  114,  citing  the  originator  of  the  proposed  reform. 

^  See  Act  of  March  4,  1913,  entitled  "An  Act  restraining  the  issuance  of  interlocutory 
injunctions  to  suspend  the  enforcement  of  the  Statute  of  a  State,  etc.,"  amending  the 
Judiciary  Act  of  March  3,  1911. 


THE  POLICE  POWER  157 

to  correspond  practically  with  the  whole  period  covered  by  the  Court's 
decisions  as  to  "due  process"  under  the  Fourteenth  Amendment.^  It 
is  important  to  note  that  a  large  proportion  of  the  State  laws^  attacked 
under  these  clauses  was  enacted  in  the  exercise  of  the  taxing  power 
by  the  State,  and  not  of  the  police  power.  There  is  a  marked  difference 
between  the  attitude  of  the  Supreme  Court  towards  mere  tax  laws, 
and  its  tendencies  when  passing  upon  State  regulative  legislation 
enacted  for  the  public  welfare  under  the  police  power. 

OBLIGATION  OF  CONTRACT   CASES 

In  the  past  forty  years  —  1873  to  191 2  —  the  Supreme  Court  has 
decided  about  320  cases  in  which  State  legislation  was  attacked  on 
the  ground  of  impairment  of  obligation  of  contract.^  Of  these,  about 
160  were  concerned  with  legislation  which  might,  in  general,  be  said 
to  have  been  enacted  for  the  pubUc  welfare  under  the  State  poUce 
power;  while  about  no  were  concerned  merely  with  questions  of 
taxation  or  private  or  municipal  indebtedness.  The  remaining 
cases  (about  fifty)  simply  decided  that  (a)  the  action  of  the  State  was 
merely  a  breach   of   contract  and  not  a  law  impairing  obligation; 

(b)  that  a  judgment  of  a  court  does  not  constitute  an  impairment ; 

(c)  that  the  proceedings  involved  did  not  constitute  a  contract ;  (d)  that 
the  jurisdiction  of  the  court  did  not  appear :  these  cases  therefore 
have  no  bearing  on  the  attitude  of  the  Court  towards  State  statutes, 
and  need  not  be  considered  in  this  connection. 

Police  Power  Legislation 

The  broad-minded  and  thoroughly  progressive  attitude  of  the  Court 
towards  legislation  of  the  first  class  mentioned  above,  is  readily  seen 
upon  examination  of  the  following  record  of  its  decisions,  classified 
and  in  detail. 

Laws  Affecting  General  Property  Rights  and  Business 

The  Supreme  Court  has  upheld  under  the  State  police  power  anti- 
lottery  laws,  anti-trust  laws,  and  legislation  affecting  the  business 
and  property  rights  of  members  of  the  community  in  general,  in  fifteen 
cases  as  follows : 

'The  Fourteenth  Amendment  was  declared  in  force  July  28,  1868;  the  first  United 
States  Supreme  Court  decision  under  it  was  the  Slaughter-house  Cases  (April  14,  1873)  16 
Wall,  36. 

2  Throughout  this  article  the  term  "State  law"  or  "State  statute"  is  intended  to  include 
a  State  constitution,  municipal  ordinance  or  an  order  issued  by  a  State  board,  ofBcer,  or 
commission  by  virtue  of  some  State  statute ;  in  other  words,  all  legislative  forms  of  State 
activity. 

3  Cases  included  in  the  following  volumes  of  reports  of  the  United  States  Supreme  Court, 
15  Wall,  to  225  U.S.  inclusive.  In  the  previous  eighty-three  years  (1780-1872)  the  Court 
decided  only  about  eighty-five  cases  on  the  question  of  obligation  of  contract. 


158  THE   POLICE  POWER 

Minnesota  law  validating  deeds  (1875) ;  Massachusetts  prohibition 
act  forbidding  sale  and  manufacture  of  liquor  (1878) ;  Mississippi 
anti-lottery  act  (1880) ;  Minnesota  dam  act  (1897) ;  Kentucky  anti- 
lottery  act  (1897) ;  Texas  land  forfeiture  act  (1902) ;  South  Carolina 
creek  obstruction  dam  act  (1905) ;  Georgia  non-resident  meat-packers' 
agent  act  (1905) ;  Oregon  change  of  street  grade  act  (1906) ;  Connecti- 
cut act  as  to  condemnation  of  minority  railroad  shares  (1906) ;  Arkan- 
sas anti-trust  law  (1909) ;  Kentucky  negro  segregation  law  (1908) ; 
Connecticut  law  restricting  interest  on  small  loans  (1910) ;  Massa- 
chusetts unclaimed  bank  deposit  act  (191 1);  New  York  ordinance 
as  to  advertising  on  street  vehicles  (1911).^ 

Laws  Regulating  the  Business  and  Property  of  Public  Service 
Corporations 

The  Supreme  Court  has  upheld,  under  the  State  police  power,  legis- 
lation affecting  the  property  rights  and  regulating  the  business,  obliga- 
tions and  existence  of  railroads,  gas,  water  and  other  public  service 
corporations,  and  imposing  new  obligations  on  them,  in  thirty-one 
cases  (other  than  tax  cases),  as  follows  : 

New  York  act  as  to  State  railroad  directors  (1873) ;  Virginia  ordi- 
nance against  engines  in  streets  (1878) ;  Georgia  act  estabUshing  new 
bridge  and  ferry  (1880) ;  Connecticut  act  requiring  railroad  station 
stops  (1881) ;  Louisiana  law  as  to  sale  of  waterworks  (1882) ;  Massa- 
chusetts repeal  of  a  railroad  charter  (1882) ;  Pennsylvania  canal 
company  reorganization  act  (1883) ;  Mississippi  railroad  regulation 
law  (1886) ;  Pennsylvania  railroad  damage  act  (1889) ;  Illinois  ri- 
parian lands  act  (1892) ;  New  York  electrical  subway  act  (1892) ; 
New  York  railroad  reorganization  law  (1893) ;  Connecticut  grade- 
crossing  removal  act  (1894) ;  Kentucky  anti-railroad  consohdation 
law  (1896) ;  Minnesota  anti-railroad  consolidation  law  (1896) ;  Mis- 
souri railroad  fire  liability  act  (1897) ;  Nebraska  law  requiring  rail- 
road to  repair  viaduct  (1898) ;  Texas  constitution  as  to  railroad  grants 
(1898) ;  New  York  railroad  land  condemnation  act  (1900) ;  Minnesota 
gaslight-post  ordinance  (1901) ;  Illinois  water  company  ordinance 
(1901) ;  Kentucky  railroad  long  and  short  haul  law  (1902) ;  Wisconsin 
act  as  to  claims  of  water  company  against  a  city  (1903) ;  Louisiana 
act  imposing  cost  of  change  in  pipe  location  on  gas  company  (1905) ; 

iRandall  vs.  Kreiger  (1875)  23  Wall.  137;  Boston  Beer  Co.  t).y.  Massachusetts  (1878) 
Q7  U.S.  25  ;  Stone  vs.  Mississippi  (1880)  loi  U.S.  814  ;  St.  Anthony  Falls  etc.  Co.  vs.  Board 
(1897)  168  U.S.  349;  Douglas  ?^.  Kentucky  (1807)  168  U.S.  488;  Wilson  ?5.  Standefer  (1902) 
18411.5.390;  Kehrer  ;)5.  Stewart  (1905)  197  U.S.  60;  Manigault  vs.  Springs  (1905)  igg 
U.S.  473 ;  Mead  vs.  Portland  (1906)  200  U.S.  148;  Offield  vs.  N.  Y.  &  N.  H.  R.R.  (1906) 
203  U.S.  372;  Hammond  Packing  Co.  vs.  Arkansas  (1909)  212  U.S.  322  ;  Berea  College  vs. 
Kentucky  (1908)  211  U.S.  45;  Griffith  vs.  Connecticut  (1910)  218  U.S.  563;  Provident 
Institution  for  Savings  vs.  Malone  (1911)  221  U.S.  660;  Fifth  Ave.  Coach  Co.  vs.  New  York 
(I911)  221  U.S.  467. 


THE  POLICE  POWER  159 

Massachusetts  act  abrogating  contract  between  city  and  railway 
(1905) ;  Illinois  act  compelling  railroad  to  pay  for  lowering  tunnel 
(1906) ;  Connecticut  act  imposing  cost  of  paving  on  street  railway 
(1906) ;  New  Jersey  act  forbidding  water  company  to  divert  water 
into  another  State  (1908) ;  Minnesota  act  requiring  railroad  to 
repair  viaduct  (1908) ;  Kansas  order  as  to  increased  train  service 
(1910) ;  Indiana  act  requiring  interlocking  crossings  on  railroads 
(1911).^ 

The  Court  has  held  invalid,  as  impairing  the  obligation  of  contract, 
only  one  statute  of  this  nature  :  Indiana  act  requiring  railroad  to  pay 
part  tolls  to  the  State  (1904).^ 

Laws  as  to  Rates  of  Public  Service  Corporations  and  as  to  Construction 
of  Municipal  Plants 

The  Supreme  Court  has  upheld  legislation  regulating  the  rates  of 
railroad,  gas,  electric  light  and  water  companies,  and  legislation 
authorizing  the  construction  of  municipal  public  service  plants,  and 
repealing  charters  of  public  service  corporations,  in  twenty-two  cases, 
as  follows : 

Illinois  act  removing  tollgates  and  making  streets  public  (1878) ; 
California  water  rates  act  (1884) ;  Pennsylvania  water  works  act 
(1887) ;  Georgia  railroad  rate  law  (1888) ;  Minnesota  railroad  rate 
law  (1890)  (1890)  (but  held  unconstitutional  under  Fourteenth  Amend- 
ment) ;  Alabama  act  regulating  water  works  monopoly  (1891) ; 
Ohio  municipal  gas  plant  act  (1892) ;  Illinois  regulation  of  water  rates 
(1901) ;  Florida  municipal  electric  light  plants  act  (1902) ;  New 
York  municipal  w^ater  works  act  (1902) ;  Alabama  constitution  revok- 
ing exclusive  franchise  to  water  company  (1902) ;  Tennessee  water 
rates  ordinance  (1903) ;  Missouri  municipal  electric  light  plan  act 
(1903) ;    Kentucky  water  rates  ordinance  (1903) ;    California  water 

1  Miller  vs.  New  York  (1873)  15  Wall.  478;  Railroad  Co.  vs.  Richmond  (1878)  96  U.S. 
521 ;  Wright  vs.  Nagle  (1880)  loi  U.S.  791 ;  N.  Y.  &  N.  H.  R.R.  vs.  Hamerslcy  (1881)  104 
U.S.  I ;  New  Orleans  vs.  Morris  (1882)  105  U.S.  600;  Greenwood  vs.  Union  Freight  R.R. 
(1882)  los  U.S.  13;  Gilfillan  vs.  Union  Canal  Co.  (1883)  109  U.S.  401;  Stone  vs.  Farmers 
etc.  Co.  (1886)  1 16  U.S.  307  ;  Penn.  R.R.  vs.  Miller  (1889)  132  U.S.  75  ;  Illinois  etc.  R.R. 
vs.  Illinois  (1892)  146  U.S.  387;  N.  Y.  Electric  Lines  Co.  vs.  Squires  (1892)  145  U.S.  175; 
New  York  vs.  Cook  (1893)  148  U.S.  397;  N.  Y.  &  N.  E.  R.R.  vs.  Bristol  (1894)  151  U.S. 
556;  L.  &  N.  R.R.  vs.  Kentucky  (1896)  161  U.S.  677;  Pearsall  vs.  Gt.  No.  R.R.  (1896) 
161  U.S.  646;  St.  Louis  etc.  R.R.  vs.  Mathews  (1897)  165  U.S.  i ;  C.  B.  &  Q.  R.R.  vs. 
Nebraska  (1898)  170  U.S.  57  ;  Galveston  etc.  R.R.  vs.  Texas  (1898)  170  U.S.  226;  Adiron- 
dack R.R.  vs.  New  York  (1900)  176  U.S.  335;  St.  Paul  Gaslight  Co.  vs.  St.  Paul  (1901) 
i8i  U.S.  142;  Rogers  Park  Water  Co.  vs.  Fergus  (1901)  180  U.S.  624;  L.  &  N.  R.R.  vs. 
Kentucky  (1902)  183  U.S.  503  ;  Oshkosh  Water  Co.  vs.  Oshkosh  (1903)  187  U.S.  437  ;  N.  O. 
Gas  Co.  vs.  N.  O.  Drainage  Com.  (1905)  197  U.S.  453;  Worcester  vs.  Worcester  etc.  Ry. 
(1905)  196  U.S.  539;  West  Chicago  .St.  Ry.  Co.  vs.  Illinois  (1906)  201  U.S.  506;  Fairhaven 
etc.  R.R.  vs.  New  Haven  (1906)  203  U.S.  379;  Hudson  County  Water  Co.  vs.  McCarter 
(1908)  209  U.S.  349 ;  No.  Pac.  R.R.  vs.  Minnesota  (1908)  208  U.S.  583 ;  No.  Pac.  R.R.  vs. 
Kansas  (1910)  216  U.S.  262;   Grand  Trunk  etc.  R.R.  vs  Indiana  (1911)  221  U.S.  400. 

*  Terre  Haute  etc.  R.R.  vs.  Indiana  (1904)  194  U.S.  579. 


i6o  THE  POLICE  POWER 

rates  reduction  act  (1904) ;  Illinois  gas  rates  reduction  act  (1904) ; 
Michigan  railroad  rates  act  (1904) ;  Idaho  municipal  water  plant  act 
(1904) ;  Tennessee  municipal  water  plant  act  (1905) ;  Texas  half-fare 
school  children  act  (1905) ;  Michigan  repeal  of  charter  of  water 
company  (1910).^ 

The  Court  has  held  eight  laws  as  to  rates  of  municipal  plants  invalid 
on  the  ground  that  the  legislation  infringed  on  exclusive  franchises 
or  on  contracts  with  the  municipalities  and  thus  impaired  the  obliga- 
tion of  contracts,  in  nine  cases : 

Louisiana  constitution  relating  to  water  company  (1885)  (1885) 
(1887) ;  Kentucky  act  chartering  gas  company  (1885) ;  Oregon  munic- 
ipal waterworks  act  (1898) ;  California  city  water  rates  ordinance 
(1900) ;  Michigan  street  railway  fare  ordinance  (1902) ;  Mississippi 
city  waterworks  (1902)  (1906)  (1907)  (one  case) ;  Ohio  street  railway 
rate  reduction  act  (1904) ;  Minnesota  street  railway  rate  reduction 
(i9io).2 

Stockholders^  Liability  Laws 

The  Supreme  Court  has  sustained  every  statute  imposing  new  or 
additional  liability  on  stockholders  in  corporations,  as  follows :  Mis- 
souri (1875) ;  Missouri  (1890) ;  California  (1901);  Minnesota  (1907); 
Kansas  (1910).^ 

1  St.  Clair  Turnpike  Co.  vs.  Illinois  (187S)  96  U.S.  63;  Spring  Valley  Water  Co.  vs. 
Shottler  (1884)  no  U.S.  347;  Lehigh  Water  Co.  vs.  Easton  (1887)  121  U.S.  388;  Georgia 
etc.  R.R.  vs.  Smith  (18S8)  128  U.S.  174;  Minn.  etc.  R.R.  vs.  Minnesota  (i8go)  134  U.S. 
467  ;  and  Chic.  etc.  R.R.  vs.  Minnesota  (1890)  134  U.S.  418 ;  (the  law  in  these  cases  being 
held  unconstitutional,  however,  on  another  ground  —  lack  of  due  process).  Stein  vs.  Bien- 
ville Water  Supply  Co.  (1891)  141  U.S.  67;  Hamilton  Gashght  Co.  vs.  Hamilton  (1892) 
146  U.S.  258;  Freeport  Water  Co.  vs.  Freeport  (1901)  180  U.S.  587;  Capital  City  Light 
Co.  vs.  Tallahassee  (1902)  186  U.S.  401 ;  Skaneateles  Water  Co.  vs.  Skaneateles  (1902)  184 
U.S.  354;  Bienville  Water  Supply  Co.  vs.  Mobile  (1902)  186  U  S.  212;  Knoxville  Water 
Co.  vs.  Knoxville  (1903)  189  U.S.  434;  Joplin  vs.  S.  W.  Mo.  Light  Co.  (1903)  igi  U.S.  150; 
Owensboro  vs.  Owensboro  Waterworks  Co.  (1903)  191  U.S.  358;  Stanislaus  Countj'  vs.  San 
Joaquin  etc.  Co.  (1904)  192  tf.S.  201 ;  People's  Gaslight  Co.  vs.  Chicago  (1904)  194  U.S. 
i;  Grand  Rapids  etc.  R.R.  vs.  Osbom  (1904)  193  U.S.  17;  Helena  Waterworks  Co.  vs. 
Helena  (1904)  195  U.S.  383;  Kno.xville  Water  Co.  vs.  Knoxville  (1906)  200  U.S.  22;  San 
Antonio  Traction  Co.  vs.  Altgelt  (1906)  200  U.S.  304;  Calder  vs.  Michigan  (1910)  21S  U.S. 
591- 

2  New  Orleans  etc.  Co.  vs.  Louisiana  etc.  Co.  (1885)  115  U.S.  650  (see  New  Orleans 
Water  Works  Co.  vs.  Rivers  (1885)  115  LT.S.  674) ;  cj.  St.  Tammany  Water  Works  Co.  vs. 
N.  O.  Water  Works  Co.  (1887)  120  U.S.  64;  Louisville  Gas  Co.  vs.  Citizens  etc.  Gas  Co. 
(1885)  115U.S.683;  Walla  Walla  W.Walla  Walla  Water  Co.  (1898)  172U.S.  i;  Los  Angeles 
vs.  Los  Angeles  City  Water  Co.  (1900)  177  L'.S.  558;  Detroit  vs.  Detroit  Citizens  St.  Ry. 
Co.  (1902)  184  U.S.  368;  Vicksburg  Water  Works  Co.  vs.  Vicksburg  (1902)  1S5  U.S.  65; 
Vicksburg  vs.  Vicksburg  Water  Co.  (1906)  202  U.S.  453;  Vicksburg  vs.  Vicksburg  Water 
Co.  (1907)  206  U.S.  496;  Cleveland  ?5.  Cleveland  City  R.R.  (1904)  194  U.S.  517;  Minne- 
sota vs.  Minn.  Street  Ry.  Co.  (1910)  215  U.S.  417. 

'Ochiltree  vs.  R.  R.  Contracting  Co.  (1875)  21  Wall.  249;  Hill  vs.  Mutual  Ins.  Co. 
(1890)  134  U.S.  515;  Pinney  vs.  Nelson  (1901)  1S3  U.S.  144;  Bemheimer  vs.  Converse 
(1907)  206  U.S.  516;  Henley  vs.  Myers  (1910)  215  U.S.  373. 


THE  POLICE  POWER  i6i 


Laws  Regulating  the  Business  and  Property  of  Private  Corporations 

The  Supreme  Court  has  upheld,  under  the  State  police  power,  legis- 
lation affecting  the  property  rights  and  regulating  the  business  and 
obligations  of  corporations  other  than  public  service  corporations,  or 
of  corporations  in  general,  in  sixteen  cases,  as  follows  : 

Pennsylvania  college  charter  amendment  (1872) ;  Illinois  abate- 
ment of  fertilizer  company  as  a  nuisance  (1878);  Illinois  insurance 
law  (1885) ;  Kentucky  removal  of  a  college  site  law  (1894) ;  Ohio 
insurance  company  annual  statement  act  (1894) ;  New  York  condem- 
nation act  (1897) ;  Texas  act  forfeiting  corporation's  right  to  do 
business  (1900) ;  Michigan  insurance  company  stockholders'  vote 
act  (1900) ;  foreign  corporation  act  of  Wisconsin  (1903) ;  Missouri  act 
as  to  assessment  insurance  company  (1902) ;  Minnesota  act  changing 
place  of  business  of  corporations  (1904) ;  Virginia  act  incorporating  a 
company  with  same  name  as  foreign  society  (1906) ;  Virginia  act  re- 
voking charter  for  illegal  liquor  sale  (1908) ;  New  York  insurance 
company  reorganization  act  (1907) ;  Oklahoma  and  Nebraska  bank 
guaranty  laws  (191  o)  (1911).^ 

The  Court  has  held  invalid  one  statute  of  this  kind  :  Tennessee  act 
restricting  a  corporation  in  its  right  to  do  business  (191 1).^ 

Laws  Affecting  Legal  Processes  and  Remedies 

The  Supreme  Court  has  upheld,  as  being  within  the  State  police 
power,  statutes  changing  or  providing  new  forms  of  remedy  or  legal 
process,  or  providing  new  statutes  of  limitation,  in  the  following 
thirty-two  cases : 

Kansas  and  Georgia  limitation  acts  (1873)  (1877) ;  Arkansas  service 
of  process  act  (1877) ;  South  Carolina  set-off  act  (1877) ;  Tennessee 
acts  abolishing  or  modifying  rights  to  sue  State  (1877)  (1880) ;  Ala- 
bama acts  repealing  right  to  sue  State  (iSSo) ;  Louisiana  registry  of 
judgments  act  (1880) ;  Pennsylvania  abolition  of  imprisonment  for 
debt  (1881) ;  Wisconsin  statute  of  limitations  (1882) ;  Texas  repeal 
of  usury  act  (1883) ;  Louisiana  mortgage  recording  law  (1883) ; 
Louisiana  tax  limit  act   (1883) ;    Illinois  mortgage  redemption  act 

'  Jefferson  College  vs.  Wash.  &  Jeff.  College  (1872)  13  Wall.  190;  N.  W.  Fertilizing  Co. 
vs.  Hyde  Park  (1878)  97  U.S.  659;  Chicago  Life  Ins.  Co.  vs.  Needles  (1885)  113  U.S.  574; 
Bryan  vs.  Board  (1894)  151  U.S.  639;  Kagle  Ins.  Co.  vs.  Ohio  (1894)  iS3  U.S.  446;  Long 
Island  Water  Supply  Co.  vs.  Brooklyn  (1897)  166  U.S.  685;  Waters-Pierce  Co.  vs.  Te.xas 
(1900)  177  U.S.  28;  Looker  vs.  Maynard  (1900)  179  L^S.  46;  Wilson  vs.  Standefer  (1902) 
184  U.S.  399;  Diamond  Glue  Co.  w.  U.S.  Glue  Co.  (1903)  187U.S.  6ii;  Knights  Templars 
Co.  vs.  Jarman  (1902)  187  U.S.  197;  Wright  vs.  Minn.  etc.  Ins.  Co.  (^1904)  193  U.S.  657; 
Nat'l  Council  vs.  State  Council  (1906)  203  U.S.  151 ;  Cosmopolitan  Club  vs.  \'irginia  (1908) 
208  U.S.  378;  Polk  vs.  Mut.  Res.  Life  Ins.  Co.  (1007)  207  U.S.  310;  Noble  State  Bank  vs. 
Haskell  (191 1)  219  U.S.  104;   Shallenberger  vs.  First  State  Bank  (1911)  219  U.S.  114. 

*  Bedford  vs.  Eastern  Bldg.  Assn.  (1901)  181  U.S.  227. 


i62  THE   POLICE  POWER 

(1883) ;  Missouri  statute  of  limitations  (1884) ;  Tennessee  set-off  and 
bond-refunding  law  (1885) ;  Minnesota  insolvent  law  (1888) ;  New 
York  statute  of  limitations  (1890)  (1890)  (1897) ;  Virginia  statute  of 
limitations  (1890) ;  Tennessee  lien  law  (1891) ;  New  York  law  regulat- 
ing rate  of  interest  on  judgments  (1892) ;  Maryland  insolvent  law 
(1892) ;  Louisiana  mandamus  law  as  added  remedy  to  force  corpora- 
tion to  comply  with  city  contracts  (1895) ;  Texas  escheat  law  (1896) ; 
North  Carolina  repeal  of  discretionary  power  of  court  to  hear  claims 
against  State  (1896) ;  North  Dakota  mechanics'  lien  law  (1901) ;  Penn- 
sylvania prescriptive  rights  as  to  ground  rents  act  (1902) ;  Texas  act 
providing  additional  legal  remedies  (1903) ;  Wisconsin  act  as  to  claims 
against  city  (1903) ;   California  mortgage  redemption  act  (1904).^ 

The  Court  has  also  upheld  the  following  10  statutes  affecting  the 
status  of  municipal  corporations  or  of  individuals : 

Ohio  act  to  change  county  seats  (18S0) ;  Louisiana  law  forbidding 
listing  of  doubtful  State  obligations  (1882) ;  Illinois  act  validating  a 
loan  (1883) ;  Missouri  bond  registration  act  (1S83) ;  Texas  public 
land  sales  law  (1889) ;  Louisiana  constitution  declaring  bonds  still  in 
State's  possession  (1893) ;  Louisiana  bond  issue  (1901) ;  Michigan 
act  creating  new  school  district  (1905) ;  South  Carolina  law  forbidding 
State  treasurer  to  carry  bonds  on  his  books  as  a  debt  (1907) ;  Pennsyl- 
vania law  enlarging  municipality  (1907). ^ 

The  Court  has  held  invalid,  as  impairing  the  obligation  of  contract, 
seven  statutes  which  were  held  to  deprive  creditors  of  substantial 
remedies  for  enforcement  of  the  debts  due  to  them ;  (of  these  seven, 
only  three  occurred  within  the  last  twenty-five  years)  : 

Georgia  act  increasing  the  amount  of  property  exempt  from  execu- 
tion (1873) ;   Georgia  act  restricting  plaintiff's  right  to  recover  a  debt 

'  Sohn  vs.  Waterson  (1873)  17  Wall.  596;  Terry  vs.  Anderson  (1877)  95  U.S.  62S;   Cairo 
etc.  R.R.  vs.  Hecht  (1877)  95  U.S.  168;    Blount  vs.  Windley  (1877)  95  U.S.  173;  Tennessee 
vs.  Sneed  (1877)  96  U.S.  69;   Memphis  etc.  R.R.  vs.  Tennessee  (1880)  loi  U.S.  337;     S.  & 
N.  R.R.  Co.  vs.  Alabama  (1880)  loi  U.S.  832;  Louisiana  vs.  New  Orleans  (1880)  102  U.S 
203;   Penniman's  Case  (1881)  103  U.S.  714;   Koshkonong  vs.  Burton  (1882)  104  U.S.  668 
Ewell  vs.  Daggs  (1883)  108  U.S.  143;   Vance  vs.  Vance  (1883)  108  U.S.  514;   Louisiana  vs 
New  Orleans  ^1883)  109  U.S.  285;   Conn.  Mut.  Life  Ins.  Co.  vs.  Cushman  (1883)  108  U.S 
si;    Mitchell  vs.  Clark  (1884)  no  U.S.  633;   Amy  vs.  Ta.x  District  (1885)  114  U.S.  387 
Denny  vs.  Bennett  (1888)  128  U.S.  489;    Wheeler  vs.  Jackson  (1890)  137  U.S.  245;    and 
McFarland  vs.  Jackson  (1890)  137  U.S.  258;    Turner  vs.  New  York  (1897)   168  U.S.  90 
Re  Brown  (1890)  135  U.S.  701;     East  Tenn.  etc.  R.R.  vs.  Frazier  (1891)  139  U.S.  288 
Morley  vs.  Lake  Shore  etc.  R.R.  (1892)  146  U.S.  162;     Brown  vs.  Smart  (1892)  145  L'.S 
454;     N.  O.  etc.  R.R.  vs.  Louisiana  (1895)  157  L'.S.  219;   Hamilton  vs.  Brown  (1896)  161 
U.S.  256;   Baltzer  vs.  North  Carolina  (1896)  161  L^.S.  240;   Red  River  etc.  Bank  vs.  Craig 
(1901)  181  U.S   548;   Wilson  vs.  Iseminger  (1902)  185  U.S.  55;   Waggoner  ?i.  Flack  (1903) 
188  U.S.  595;    Oshkosh  Water  Works  Co.  vs.  Oshkosh  (1903)  187  U.S.  437;    Hooker  vs. 
Burr  (1904)  194  U.S.  415. 

'  Newton  vs.  Commissioners  (1880)  100  U.S.  548;  N.  Y.  Guar.  Co.  vs.  Board  of  Liqui- 
dation (1882)  los  U.S.  622;  Gross  vs.  U.S.  Mortgage  Co.  (1883)  108  U.S.  477;  Hofi  vs. 
Jasper  County  (1883)  no  U.S.  53;  Campbelh'5  Wad  (1889)  132  U.S.  ^4;  Bieri'5.  McGeehee 
(1893)  148  U.S.  137  ;  Board  vs.  Louisiana  (1901)  179  U.S.  622;  Michigan  vs.  Lowry  (1905) 
199  U.S.  233;  Smith  vs.  Jennings  (1907)  206  U.S.  276;  Hunter  vs.  Pittsburg  (1907)  207 
U.S.  161. 


THE   POLICE  POWER  163 

until  he  pays  a  certain  tax  (1873) ;  North  Carolina  act  exempting 
property  from  execution  (1878) ;  Virginia  act  affecting  remedy  (1885) ; 
Ohio  mechanics'  lien  law  (1890) ;  Kansas  and  Illinois  mortgage  fore- 
closure acts  (1896)  (1904).^ 

In  addition  to  the  above,  the  Court  has  held  invalid  legislation 
changing  the  obligation  of  individuals  or  municipalities  in  nine  cases, 
(of  which  only  four  occurred  within  the  last  twenty-five  years),  as 
follows : 

South  Carolina  act  creating  a  preference  for  the  State  as  creditor  of 
a  State  bank  (1S74) ;  North  Carolina  act  as  to  contracts  payable  in 
Confederate  currency  (1875) ;  Virginia  Confederate  sequestration 
act  (1878) ;  Tennessee  act  voiding  bank  issues  during  the  Civil  War 
(1878) ;  Wisconsin  act  abolishing  an  office  held  under  a  contract 
(1880) ;  Oregon  land  act  (1891) ;  Texas  constitution  as  to  land  grants 
(1898);  Texas  act  repudiating  land  warrants  (1900);  New  York 
elevated  railway  act  (1905).^ 

The  foregoing  cases  may  be  said  to  cover  in  general  all  the  statutes 
enacted  by  State  legislatures  in  the  exercise  of  the  State  police  power 
for  the  general  welfare  of  the  people,  and  which  have  been  attacked 
on  the  ground  of  impairment  of  obligation  of  contract.  From  the 
records,  it  would  appear  that,  in  this  class  of  cases,  statutes  were  found 
constitutional  in  131  cases ;  twenty-seven  were  found  unconstitutional, 
the  Court  thus  holding  unconstitutional  an  average  of  about  one 
statute  of  this  nature  every  two  years. 

It  is  clear,  therefore,  that  here  also,  as  in  the  case  of  legislation  at- 
tacked under  the  due  process  clause  of  the  Fourteenth  Amendment, 
the  United  States  Supreme  Court  has  been  consistently  liberal  in  its 
support  of  modern  State  legislation,  enacted  under  the  State  police 
power. 

Taxing  Power  Legislation 

In  addition  to  the  above  158  cases,  there  have  been  about  no  cases 
in  which  statutes  were  attacked  as  impairing  obligation  of  contract ; 
but  these  were  concerned,  however,  merely  with  the  subjects  of  taxa- 
tion and  of  municipal  or  State  obligations.  Such  decisions  affecting 
merely  the  taxing  power  and  indix'idual  property  rights  do  not  come 
within  the  class  of  statutes  which  the  advocates  of  the  recall  of  judicial 
decisions  claim  should  be  subject  to  their  new  remedy. 

iGunn  vs.  Barry  (1873)  15  Wall.  610;  Walker  vs.  Whitehead  (1873)  16  Wall.  314; 
Edwards  z'5.  Kearzey  (1878)  96  U.S.  595;  Effingcr  w.  Kenney  (1885)  115  U.S.  566;  Toledo 
etc.  Ry.  vs.  Hamilton  (1890)  134  U.S.  296;  Barnitz  w.  Beverly  (1896)  163  U.S.  118;  Brad- 
ley vs.  Lightcap  (1904)  195  U.S.  i. 

2  Barings  vs.  Dabney  (1874)  iQ  Wall,  i ;  Wilmington  etc.  R.R.  vs.  King  (1875)  Qi  U.S. 
3;  Williams  vs.  BruSy  (1878)  96  U.S.  176;  Keith  vs.  Clark  (1878)  97  U.S.  454;  Hall  vs. 
Wisconsin  (1880)  103  U.S.  5  ;  Pennoyer  vs.  McConnaughy  (i8gi)  140  U.S.  i ;  Houston  etc. 
R.R.  vs.  Texas  (1898)  170  U.S.  343;  Houston  etc.  R.R.  vs.  Texas  (1900)  177  U.S.  66; 
Muhlker  vs.  N.  Y.  &  H.  R.R.  (1905)  197  U.S.  544. 


i64  THE  POLICE   POWER 

Taxes  on  Corporations 

The  Supreme  Court  has  upheld  legislation  taxing  corporations, 
and  has  denied  that  the  charters  of  such  corporations  taxed,  or  that 
the  previous  legislation  regarding  them,  constituted  a  contract  en- 
titling them  to  exemption  from  taxation,  in  the  following  fifty  cases : 

South  Carolina  railroad  tax  (1873) ;  Delaware  railroad  tax  (1874) ; 
Missouri  railroad  tax  (1874);  Pennsylvania  railroad  tax  (1875) ; 
Michigan  tax  (1875);  Illinois  bank  tax  (1875);  Georgia  license  tax 
on  insurance  companies  (1876) ;  Wisconsin  railroad  tax  (1876) ; 
Georgia  railway  tax  (1876)  (1876) ;  Virginia  railroad  tax  (1877) ; 
Tennessee  railroad  tax  (1878) ;  Maine  railroad  tax  (1878) ;  Pennsyl- 
vania car  license  act  (1880);  South  Carolina  railroad  tax  (1879); 
Arkansas  railroad  tax  (1879) ;  Maryland  tax  on  exempt  bonds  of 
other  States  (1882) ;  Tennessee  bank  tax  (1882) ;  Tennessee  tax 
(1883) ;  Florida  railroad  tax  (1883) ;  Missouri  ferry  license  fee  (1883) ; 
Arkansas  railroad  tax  (1884)  (1885) ;  West  Virginia  railroad  tax 
(1885);  New  Jersey  tax  (1886);  Louisiana  railroad  tax  (1886); 
Tennessee  railroad  tax  (1889) ;  Louisiana  tax  (1891) ;  Louisiana  rail- 
road tax  (1892) ;  Kentucky  tax  (1892) ;  North  Carolina  railroad 
tax  (1892) ;  Missouri  railroad  tax  (1894) ;  Tennessee  tax  (1896) ; 
Tennessee  constitution  (1896) ;  Mississippi  levee  tax  (1897) ;  Loviisiana 
constitution  tax  (1897) ;  Kentucky  bank  tax  (1899) ;  Kentucky 
bridge  tax  (1899) ;  Mississippi  railroad  tax  (1901)  (1901)  (1901); 
Georgia  tax  (1901) ;  New  York  succession  tax  (1902) ;  Michigan 
railroad  tax  (1903) ;  New  York  special  franchise  tax  (1905) ;  Tennes- 
see tax  (1908) ;  Kentucky  bank  tax  (1907) ;  Missouri  license  tax 
(1908) ;  Kentucky  bank  tax  (1910) ;  Virginia  tax  (1911).^ 

1  After  the  year  1818  when  the  Court  decided,  in  the  Dartmouth  College  Case,  a  legis- 
lative charter  to  be  a  contract,  many  fears  were  expressed  that  such  doctrine  would  doom 
all  State  legislation  relating  to  corporations.  In  1826,  in  the  United  States  Senate,  Martin 
Van  Buren  severelj'  criticized  the  Court  for  its  broad  construction  of  the  phrase  "impair- 
ment of  obligation  of  contract."  and  deplored  the  "tremendous  sweep'  which  that  con- 
struction had  given  to  the  jurisdiction  of  the  Court.  A  decision  of  the  Court  in  1853  in 
Piqua  Branch  of  The  State  Bank  of  Ohio  vs.  Knoop,  16  How.  369  caused  even  greater  fear 
in  the  United  States  lest  the  Supreme  Court  should  become  the  engine  of  destruction  of 
State  legislation.  In  that  case  it  was  announced  definitely  that  a  State  legislature  had 
power  to  exempt  corporations  from  taxation,  so  that  a  tax  imposed  by  a  later  legislature 
was  to  be  held  an  "impairment  of  obhgation"  of  the  contract  of  exemption,  and  therefore 
unconstitutional.  Judge  Campbell,  in  his  dissenting  opinion,  violently  attacked  the  de- 
cision as  utterly  subversive  to  the  State  powers.  On  how  httle  ground  these  fears  were 
based,  may  be  seen  from  the  actual  record  of  the  Court  relative  to  statutes  of  this  nature, 
as  follows:  —  Tomlinson  vs.  Jessup  (1873)  15  .Wall.  454;  Minot  vs.  R.R.  (1874)  18  Wall. 
206;  Trask  vs.  JMaguire  (1874)  18  Wall.  391;  Erie  Ry.  Co.  vs.  Pennsylvania  (1875)  21 
Wall.  492;  Tucker  vs.  Ferguson  (1875)  22  Wall.  527;  Concord  vs.  Portsmouth  Sav.  Bank 
(187s)  92  U.S.  62s;  Home  Ins.  Co.  vs.  Augusta  (1876)  93  U.S.  116;  West  Wisconsin  Ry. 
vs.  Trempeleau  County  (1876)  93  U.S.  59s  ;  Ches.  &  Oliio  R.R.  vs.  Virginia  (1877)  94  U.S. 
718;  Central  R.R.  etc.  Co.  vs.  Georgia  (1876)  92  U.S.  665  ;  S.  W.  R.R.  vs.  Georgia  (1876) 
92  U.S.  676;  Railroad  Companies  vs.  Gaines  (1878)  97  U.S.  697;  Maine  Centr.  R.R.  vs. 
Maine  (1878)  96  U.S.  499;  Union  Ry.  Co.  vs.  Philadelphia  (1880)  loi  U.S.  528;  Hoge  vs. 
Railroad  Co.  (1879)  99  U.S.  348;  Railway  Co.  vs.  Loftin  (1879)  98  U.S.  S59 ;   Bonaparte 


THE  POLICE  POWER  165 

The  Court  has  held  statutes  invalid  in  eighteen  cases  as  imposing 
taxes  on  corporations  which  were  held  specilically  exempt  from  taxa- 
tion under  their  charters  or  under  previous  legislation ;  (of  these 
eighteen  cases,  however,  only  nine  occurred  within  the  last  twenty- 
five  years) : 

North  Carolina  railroad  tax  (1872) ;  South  Carohna  railroad  tax 
(1873)  (1873) ;  Missouri  (1874) ;  New  Jersey  (1877) ;  Tennessee  bank 
tax  (1878) ;  lUinois  tax  act  (1879) ;  Louisiana  tax  (1882) ;  Tennessee 
(1886) ;  Tennessee  (1894) ;  Tennessee  bank  tax  (1896) ;  Louisiana 
bank  tax  (1879) ;  Minnesota  railroad  tax  (1900) ;  Louisiana  license 
tax  (1904) ;  Michigan  railroad  tax  (1906) ;  Colorado  foreign  corpora- 
tion Hcense  tax  (1907) ;  Georgia  franchise  tax  (1910) ;  Louisiana 
lottery  tax  (i886).i 

State  and  Municipal  Taxes 

The  principal  class  of  statutes  which  have  been  held  invalid  by  the 
Supreme  Court  as  in  violation  of  this  clause  of  the  Constitution,  has 
been  that  which  includes  the  numerous  laws  by  which  States  have 
endeavored  to  authorize  the  evasion  of  payment  of  bonds,  issued  by  the 
State,  city,  or  county  under  some  prior  administration. 

Statutes  reducing  or  annulling  power  of  taxation  previously  existing 
have  been  declared  invalid  in  thirteen  cases  (of  which  only  four 

vs.  Tax  Court  (1882)  104  U.S.  502 ;  Bank  of  Commerce  vs.  Tennessee  (1882)  104  U.S.  403 ; 
Memphis  Gas  Light  Co.  vs.  Shelby  County  (1883)  log  U.S.  398 ;  L.  &  N.  R.R.  vs.  Palmes 
(1883)  109  U.  S.  244 ;  Wiggin  Ferry  Co.  vs.  St.  Louis  (1883)  107  U.  S.  365  ;  Memphis  R.R. 
vs.  Commissioners  (1884)  112  U  S.  609;  St.  Louis  etc.  Ry.  Co.  vs.  Berry  (1885)  113  U.S. 
46s;  Ches.  &  Ohio  R.R.  vs.  Miller  (1885)  114  U-  S.  176;  Given  vs.  Wright  (1886)  117  U.S. 
648;  Vicksburg  R.R.  vs.  Dennis  (1886)  116  U.  S.  665 ;  Pickard  vs.  East  Tenn.  etc.  R.R. 
(1889)  130  U.  S.  637;  New  Orleans  vs.  N.  O.  Water  Works  Co.  (1891)  142  U.S.  79;  New 
Orleans  etc.  R.R.  vs.  New  Orleans  (1892)  143  U.  S.  192;  Louis\-ille  Water  Co.  vs.  Clark 
(1892)  143  U.S.  I ;  Wilmington  etc.  R.R.  vs.  Aldsbrook  (1892)  146  U.S.  279;  Keokuk  etc. 
R.R.  vs.  Missouri  (1894)  152  U.S.  301  ;  Phoenix  etc.  Ins.  Co.  vs.  Tennessee  (1896)  161  U.S. 
174;  Bank  of  Commerce  vs.  Tennessee  (1806)  163  U.S.  416;  Ford  vs.  Delta  etc.  Co.  (1897) 
164  U.S.  662;  Grand  Lodge  vs.  New  Orleans  (1897)  166  U.S.  143;  Louisville  vs.  Bank  of 
Louisville  (1899)  174  U.S.  439;  Henderson  Bridge  Co.  vs.  Henderson  (1899)  173  U.S.  592; 
Yazoo  etc.  R.R.  vs.  Adams  (1901)  180  U.S.  i;  111.  etc.  R.R.  vs.  Adams  (1901)  180  U.S. 
28;  Gulf  etc.  R.R.  vs.  Hewes  (1901)  183  U.  S.  66;  Wells  vs.  Savannah  (1901)  181  U.S.  531 ; 
Orr  vs.  Oilman  (1902)  183  U.S.  278:  Wi.sconsin  etc.  R.R.  vs.  Powers  (1903)  191  U.S.  379; 
New  York  vs.  State  Board  (1905)  199  U.S.  i  ;  (see  also  199  U.S.  48;  199  U.S.  53) ;  Jetton 
vs.  University  (1908)  208  U.S.  489;  Bank  of  Kentucky  vs.  Kentucky  (1907)  207  U.S.  258; 
St.  Louis  t'5.  United  Rys.  Co.  (1908)  210  U.S.  266;  Citizens  Nat.  Bank  vs.  Kentucky  (1910) 
217  U.S.  443;  J.  W.  Perry  Co.  vs.  Norfolk  (191 1)  220  U.S.  472. 

'  Wilmington  R.R.  Co.  vs.  Reid  (1872)  13  Wall.  264;  Tomlinson  vs.  Branch  (1873)  15 
Wall.  460;  Humphrey  vs.  Pegues  (1873)  16  Wall.  244  ;  Pacific  R.R.  Co.  vs.  McGuire  (1874) 
20  Wall.  36;  New  Jersey  vs.  Yard  (1877)  95  U.S.  104;  Farrington  vs.  Tennessee  (1878)  95 
U.  S.  679;  University  vs.  People  (1879)  99  U.S.  309;  Asylum  vs.  New  Orleans  (1882)  105 
U.S.  362;  Tennessee  vs.  Whitworth  (1886)  117  U.S.  129;  Mobile  etc.  R.R.  vs.  Tennessee 
(1894)  153  U.S.  486;  Bank  of  Commerce  vs.  Tennessee  (i8g6)  161  U.S.  134;  New  Orleans 
vs.  Citizens  Bank  (1897)  167  U.S.  371;  Steams  us.  Miimesota  (1900)  179  U.S.  223;  (see 
Duluth  etc.  R.R.  vs.  St.  Louis  County  (1900)  179  U.S.  302);  Citizens  Bank  vs.  Parker 
(1904)  192  U.S.  73;  Powers  vs.  Detroit  etc.  R.R.  (1906)  201  U.S.  543;  .Amer.  Sm.  &  Ref. 
Co.  vs.  Colorado  (1907)  204  U.S.  103;  Wright  vs.  Ga.  etc.  R.R.  (1910)  216  U.S.  420;  New 
Orleans  vs.  Houston  (1886)  119  U.S.  265. 


1 66  THE   POLICE  POWER 

occurred  within  the  last  twenty-five  years)  in  the  following  States  :  — 
Tennessee  (1878) ;  Wisconsin  (1880) ;  Louisiana  (1881)  (1882) ;  Mis- 
souri (1882) ;  Louisiana  (1884) ;  Alabama  (1886) ;  Louisiana  (1886) ; 
Missouri  (1887) ;  Missouri  (1891) ;  Missouri  (1897) ;  South  Carolina 
(1906) ;  Louisiana  (1909).^  And  State  laws  otherwise  interfering 
with  the  payment  of  State  and  municipal  bonds  have  been  held  invalid, 
as  follows :  Seven  laws  in  Pennsylvania,  South  Carolina,  Minnesota, 
lUinois,  Louisiana,  South  Carolina,  and  Pennsylvania,  and  a  series  of 
cases  as  to  Virginia  bon.d  laws  (of  these  cases,  only  three  occurred 
within  the  last  twenty-five  years) : 

Pennsylvania  tax  on  foreign  held  bonds  (1873) ;  South  Carolina 
ordinance  deducting  tax  from  city  debt  interest  when  payable  (1878) ; 
Minnesota  act  withdrawing  authority  from  town  to  subscribe  to 
bonds  (1883) ;  Virginia  act  deducting  tax  from  interest  coupons 
(1881) ;  Virginia  act  forbidding  receipt  of  coupons  on  State  bonds  in 
payment  of  taxes  (1883)  (1885) ;  Virginia  bond  law  (1886)  (1886) 
(18S7)  (1898) ;  Virginia  license  tax  for  sale  of  coupons  (1890) ;  Illinois 
constitution  forbidding  municipal  subscription  to  corporate  securities 
when  applied  to  previous  subscriptions  (1882) ;  Louisiana  lottery 
bond  act  (1882) ;  South  Carolina  bond  invalidation  law  (1886) ; 
Pennsylvania  act  requiring  railroads  to  deduct  tax  from  coupons 

(1894).- 

On  the  other  hand,  the  Supreme  Court  has  upheld  legislation  altering 
or  imposing  new  taxes  or  assessments  or  tax  remedies  in  thirteen 
cases,  as  follows : 

New  York  tax  act  (1875) ;  Louisiana  tax  act  (1875) ;  Indiana  law 
refunding  taxes  (1876) ;  Tennessee  city  street  tax  (1878) ;  Tennessee 
act  repealing  city  charter  (1880) ;  California  swamp  reclamation  act 
(1884) ;  New  Jersey  highway  assessment  act  (1891) ;  Maryland  repeal 
of  tax  (1902) ;    New  York  succession  tax  (1902)  (1903) ;    New  York 

1  Memphis  vs.  United  States  (187S)  q7  U.S.  29s;  (see  Memphis  vs.  Brown  (1878)  97 
U.S.  297) ;  Mt.  Pleasant  vs.  Beckwith  (1880)  100  U.S.  514;  Wolff  vs.  New  Orleans  (1881) 
103  U.S.  358;  Ralls  County  Court  vs.  United  States  (1882)  105  U.S.  733;  Louisiana  vs. 
Pillsbury  (18S2)  105  U.S.  278  ;  Louisiana  vs.  Parish  (1884)  iii  U.S.  716;  Mobile  vs.  Watson 
(1886)  116  U.S.  289;  Louisiana  vs.  Police  Jury  (1886)  116  U.S.  131;  Seibert  vs.  United 
States  (1887)  122  U.S.  284;  Scotland  County  Court  vs.  L'nited  States  (1891)  140  U.S.  41; 
Shapleigh  vs.  San  Angelo  (1897)  167  U.S.  646;  Graham  vs.  Folsom  (1906)  200  U.S.  248; 
Louisiana  vs.  New  Orleans  (1909)  215  U.S.  170.  See  also  Shreveport  vs.  Cole  (1889)  129 
U.S.  36. 

2  Cleveland  etc.  R.R.  vs.  Pennsylvania  (1873)  iS  Wall.  300;  Murray  vs.  Charleston 
(1878)  96  U.S.  432;  Red  Rock  vs.  Henry  (1883)  106  U.S.  596;  Hartman  vs.  Greenhow 
(1881)  102  U.S.  672;  Antoni  vs.  Greenhow  (1883)  107  U.S.  769;  Poindexter  vs.  Greenhow 
(188s)  114  U.S.  270;  Chaffin  vs.  Taylor  (1885)  114  U.S.  309;  Allen  vs.  Bait.  &  O.  R.R. 
(1885)  114  U.S.  311;  White  vs.  Greenhow  (1885)  114  U.S.  307;  Pleasants  vs.  Greenhow 
(1885)  114  U.S.  323;  Sands  vs.  Edmunds  (1886)  116  U.S.  585;  Royall  vs.  Virginia  (1886) 
116  U.S.  572;  Royall  vs.  Virginia  (1887)  121  U.S.  102;  McGahey  vs.  \'irginia  (1890)  135 
U.S.  662  (and  seven  other  cases) ;  McCuOogh  vs.  Virginia  (1898)  172  U.S.  102  ;  Clay  County 
vs.  Soc.  for  Savings  (1882)  104  U.S.  579;  Louisiana  vs.  Pillsbury  (1882)  105  U.S.  278; 
Hagood  vs.  Southern  (1886)  117  U.S.  52;  N.  Y.  etc.  Ry.  vs.  Pennsylvania  (1894)  i53  U.S. 
628. 


THE  POLICE   POWER  167 

stock  transfer  tax  (1906) ;  Louisiana  constitution  exempting  property 
from  taxation  (1910) ;   California  inheritance  tax  (1910).^ 

INTERSTATE   COMMERCE   CASES 

In  the  forty  years  between  1873  and  191 2,  the  constitutionality  of 
State  statutes  or  State  action  was  attacked  either  in  the  State  highest 
courts  or  in  the  inferior  Federal  courts  on  the  ground  of  interference 
with  the  Federal  jurisdiction  over  interstate  commerce  in  about  260 
cases.^  Of  these,  about  145  were  concerned  with  legislation  enacted 
in  general  for  the  public  welfare  under  the  State  police  power ;  while 
about  115  were  concerned  merely  with  cjuestions  of  taxation. 

Police  Poaver  Legislation 

A  review  of  the  decisions  on  interstate  commerce  of  the  first  class 
above  noted  shows  that  the  Supreme  Court  has,  where  possible,  tried 
to  sustain  the  constitutionality  of  State  laws  by  imputing  to  the  State 
the  intent  to  legislate  under  the  police  power  reserved  to  the  State 
rather  than  an  intent  to  interfere  with  the  interstate  commerce  powers 
of  the  National  Government. 

Inspection  Laws 

The  Court  has  upheld  seven  inspection  acts  as  follows : 

Kentucky  oil  inspection  act  (1879) ;  Maryland  tobacco  inspection 
act  (1883) ;  North  Carolina  fertilizer  inspection  act  (1898) ;  Missouri 
beer  inspection  fee-  law  (1905) ;  New  Mexico  hide  inspection  law 
(1906) ;  Tennessee  oil  inspection  act  (1908) ;  North  Carolina  kerosene 
and  oil  inspection  acts  (1912).^ 

It  has  invalidated  three  as  follows  : 

Minnesota  law  requiring  inspection  of  meats  in  State  before  slaughter 
(1890);  Virginia  law  forbidding  sale  of  meats  slaughtered  more  than  100 
miles  from  place  of  sale  (1891) ;  Virginia  flour  inspection  act  (i89i).'' 

^  Garrison  vs.  New  York  (1875)  21  Wall.  196;  Morgan  vs.  Louisiana  (1876)  93  L^.S. 
217;  Tippecanoe  County  vs.  Lucas  (1876)  9.3  U.S.  to8;  United  States  vs.  Memphis  (1878) 
97  U.S.  284;  Merriweather  ?5.  Garrett  (1S80)  102  U.S.  472;  Hager  w.  Reclamation  District 
(1884)  III  L\S.  701 ;  Essex  Public  Road  Ward  vs.  Skinkle  (1891)  140  U.S.  334;  No.  etc. 
R.R.  vs.  Marj^land  (1902)  187  U.S.  258;  Orr  vs.  Gilman  (1902)  183  U.S.  278;  Blackstone 
vs.  Miller  (1903)  188  U.S.  189;  Chanler  vs.  Kelsey  (1907)  205  U.S.  466;  Ark.  &  So.  R.R. 
vs.  La.  etc.  R.R.  (1910)  218  U.S.  431 ;    Moffitt  vs.  Kelly  (1910)  218  U.S.  400. 

2  See  the  volumes  of  U.S.  Reports  from  15  Wall,  to  223  U.S.  inclusive.  In  the  previous 
eighty-three  years  (1789-187  2)  the  court  decided  only  about  thirty-seven  cases  involving 
State  statutes  and  interstate  commerce.  ♦ 

'Patter.son  vs.  Kentucky  (1879)  97  U.S.  501 ;  Turner  vs.  Mar>'Iand  (1883)  107  U.S.  38; 
Patapsco  Guano  Co.  vs.  No.  Car.  Board  (1898)  171  U.S.  345  ;  Pabst  Brewing  Co.  vs.  Cren- 
shaw (1905)  198  U.S.  17;  McLean  vs.  Denver  etc.  R.R.  (1906)  203  U.S.  38;  General  Oil 
Co.  vs.  Crain  (1908)  209  U.S.  211;  The  Red  Oil  Mfg.  Co.  vs.  North  Carolina  (1912)  222 
U.S.  380. 

*  Minnesota  vs.  Barber  (1890)  136  U.S.  313;  Brimmer  vs.  Rebman  (1891)  138  U.S.  78; 
Voight  vs.  Wright  (1891)  141  U.S.  62. 


1 68  THE  POLICE  POWER 


Game  Laws 


The  Court  has  sustained  the  game  bird  law  of  Connecticut  (1896) 
and  the  game  law  of  New  York  (1908).^ 

Modern  Economic  Legislation 

The  Court  has  upheld  the  following  modern  legislation  of  an  eco- 
nomic and  financial  nature : 

Alabama  license  for  buying  and  selling  futures  (1908) ;  Missouri  act 
as  to  sales  for  future  delivery  (191 1) ;  Iowa  railroad  car  attachment 
act  (1910) ;  Tennessee  anti-trust  act  (1910) ;  New  York  license  act 
for  private  bankers  (1911);  Kansas  act  for  regulating  powder 
for  coal  mines  (191 2);  Nebraska  modified  contributory  negligence 
law  (1912).^ 

Cattle,  Health,  and  Quarantine  Laws 

The  Court  has  sustained  nine  laws  relating  to  cattle  disease  and 
cattle  quarantine,  as  follows : 

Louisiana  quarantine  laws  (1886)  (1900)  (1902) ;  Iowa  damage 
from  Texas  fever  cattle  act  (1888) ;  Kansas  cattle  contagious  disease 
act  (1898) ;  Texas  anthrax  quarantine  law  (1901) ;  Idaho  sheep 
quarantine  act  (1901) ;  Colorado  cattle  inspection  law  (1902) ;  Kansas 
live  stock  cjuarantine  law  (1908).^ 

It  has  invalidated  one:  Missouri  act  against  driving  Texas  cattle 
(1878).'' 

Liquor  and  Cigarette  Laws 

The  Court  has  sustained  prohibitory  and  other  laws  as  to  liquor 
and  cigarettes  in  13  cases  as  follows  : 

Iowa  hquor  laws  (1874)  (1888)  (1898)  (1905) ;  Kansas  liquor  pro- 
hibition laws  (1884)  (1891) ;  Tennessee  cigarette  prohibition  law 
(1900) ;  Iowa  cigarette  law  (1905) ;  Tennessee  license  for  selling  liquors 
on  ferry  boats  (1908) ;    Georgia  liquor  law  (1906) ;    Kentucky  liquor 

•  Geer  vs.  Connecticut  (1896)  161  U.S.  519;  New  York  vs.  Hesterberg  (1908)  211  U.S. 
31- 

^  Ware  vs.  Mobile  Co.  (1908)  209  U.S.  405;  Brodnax  vs.  Missouri  (1911)  219  U.S.  285; 
Davis  vs.  Cleveland  etc.  R.R.  (igio)  217  U.S.  157  ;  Standard  Oil  Co.  vs.  Tennessee  (1910) 
217  U.S.  413;  Engel  i'5.  O'Malley  (191 1)  2ig  U.S.  128;  Williams  w.  Walsh  (191 2)  222  U.S. 
415;   Mo.  Pac.  R.R.  vs.  Castle  (1912)  224  U.S.  541. 

'Morgan's  etc.  S.  S.  Co.  vs.  Louisiana  (1886)  118  U.S.  455;  Louisiana  vs.  Texas  (1900) 
176  U.S.  I ;  Compagnie  Frangaise  etc.  vs.  La.  State  Board  (1902)  186  U.S.  380;  Kimmish 
vs.  Ball  (1889)  129  U.S.  217;  Mo.  etc.  R.R.  vs.  Huber  (1898)  169  U.S.  613;  Smith  vs.  St. 
Louis  etc.  R.R.  (1901)  181  LLS.  248;  Rasmussen  vs.  Idaho  (1901)  181  U.S.  198;  Reid  vs. 
Colorado  (1902)  187  U.S.  137;   Asbcll  vs.  Kansas  (1908)  209  U.S.  251. 

■*  Railroad  Co.  vs.  Husen  (1878)  95  U.S.  465. 


THE   POLICE   POWER  169 

law  (1907) ;  South  Dakota  license  tax  on  liquor  drummers  (1907) ; 
Alabama  liquor  license  tax  (1908).^ 

It  has  held  that  the  operation  of  such  laws  interfered  with  interstate 
commerce  in  nine  cases  as  follows  : 

Texas  tax  on  imported  liquors  (1880) ;  Iowa  liquor  law  (1888) ; 
Michigan  brewer  license  act  and  tax  on  receipts  (1890) ;  Iowa  liquor 
act  (1890) ;  South  Carolina  State  dispensary  law  (1897) !  South 
Carolina  liquor  inspection  law  (1898) ;   Kentucky  liquor  laws  (1907) 

(1909)    (l9I2).2 

Oleomargarine  Laws 

The  Court  has  sustained  two  oleomargarine  laws :  Massachusetts 
(1894)  and  Ohio  (1902) ;  ^  and  has  invalidated  two  :  New  Hampshire 
(1898)  and  Pennsylvania  (1898).'' 

Negro  Segregation  Laws 

The  Court  has  sustained  two  laws  relating  to  segregation  of  negroes 
in  trains:  the  "Jim  Crow"  law  of  Mississippi  (1890) ;  the  Kentucky 
negro  car  law  (1910) ;  ^  and  has  invalidated  one,  the  steamboat 
separate  cabin  law  of  Louisiana.® 

Railroad  Legislation 

No  subject  has  more  engrossed  the  attention  of  State  legislation 
during  the  past  twenty-five  years  than  that  of  the  regulation  of  rail- 
roads. It  is  not  surprising,  therefore,  that  the  largest  number  of  cases 
tested  under  the  interstate  commerce  clause  involved  railroad  statutes. 

The  Court  has  sustained  the  powers  of  the  States  to  control  and 
regulate  the  general  administration  of  railroads  in  twenty-five  cases, 
as  follows : 

1  Bartemeyer  vs.  Iowa  (1874)  18  Wall.  1 29  ;  Kidd  vs.  Pearson  (1888)  1 28  U.S.  i ;  Rhodes 
vs.  Iowa  (1898)  170  U.S.  412;  Amer.  Ex.  Co.  vs.  Iowa  (1905)  196  U.S.  133;  Foster  vs. 
Kansas  (1884)  112  U.S.  201;  Wilkerson  vs.  Rahrer  (1891)  140  U.S.  545;  Austin  vs.  Ten- 
nessee (1900)  179  U.S.  343;  Cook  vs.  Marshall  Co.  (1905)  196  U.S.  261;  Foppiano  vs. 
Speed  (190s)  199  U.S.  501 ;  Ileyman  vs.  So.  R.R.  {1906)  203  U.S.  270;  Adams  Ex.  Co.  vs. 
Kentucky  (1907)  206  U.S.  129,  and  two  other  cases;  Delamater  vs.  South  Dakota  (1907) 
20s  U.S.  93;   Ware  &  Leland  vs.  Mobile  (1908)  209  U.S.  405. 

^Tiernan  vs.  Rinker  (1880)  102  U.S.  123:  Bowman  vs.  Chic.  cS:  N.  W.  R.R.  (1888)  125 
U.S.  465  ;  Lynjj  vs.  Michigan  (1890)  135  U.S.  i6i ;  Leisy  vs.  Hardin  (1890)135  U.S.  100; 
Scott  vs.  Donald  (1897)  165  U.S.  58;  Scott  vs.  Donald  (1897)  165  U.S.  107;  Vance  vs. 
W.  A.  Vandercook  Co.  (1898)  170  U.S.  438;  Adams  Ex.  Co.  vs.  Kentucky  (1907)  206  U.S. 
129;  .\dams  Ex.  Co.  vs.  Kentucky  (1909)  214  U.S.  218;  L.  &  N.  R.R.  vs.  Cook  Brewing 
Co.  (1912)  223  U.S.  70. 

'  Plumley  vs.  Massachusetts  (1894)  155  U.S.  461,  Capital  City  Dairj'  Co.  vs.  Ohio  (1902) 
183  U.S.  238. 

■•  Schollenberger  vs.  Pennsylvania  (1898)  171  U.S.  i ;  Collins  vs.  New  Hampshire  (1898) 
171  U.S.  30. 

'  Louisville  etc.  R.R.  vs.  Mississippi  (1890)  133  U.S.  587  ;  Chiles  vs.  Ches.  &  Ohio  R.R. 
(1910)  218  U.S.  71. 

6  Hall  vs.  DcCuir  (1878)  95  U.S.  485. 


I70  THE  POLICE  POWER 

Iowa  railroad  contract  (1874) ;  Alabama  license  law  for  engineers 
(1888) ;  Alabama  law  regulating  qualifications,  duties,  liability  and 
color  blindness  of  employees  on  interstate  trains  (1888);  Kentucky 
act  prohibiting  consolidation  of  parallel  lines  (1896) ;  New  York 
railroad  car  stove  law  (1897) ;  Minnesota  interstate  mail  train  county 
stop  act  (1897) ;  Georgia  Sunday  freight  train  stop  act  (1896) ;  Ohio 
train  stop  act  (1899) ;  Virginia,  West  Virginia  and  Missouri  laws  as 
to  liability  for  negligence  on  connecting  lines  (1898)  (1898)  (1899) ; 
Iowa  law  as  to  contracts  for  exemption  from  liability  (1898) ;  Cali- 
fornia State  court  jurisdiction  of  prosecution  for  murder  of  engineer 
on  U.S.  mail  train  (1898) ;  Kansas  railroad  speed  act  (1900) ;  Minne- 
sota track  connection  act  (1900) ;  New  York  mileage  book  act  (1902) ; 
Pennsylvania  law  limiting  carriers'  liability  for  negligence  (1903) 
(1906) ;  Texas  interstate  railroad  shipments  (1907) ;  Mississippi 
orders  to  standardize  narrow  gauge  road  and  operate  a  spur  track 
(1908) ;  Kansas  order  as  to  railroad  service  to  particular  shipper 
(1909) ;  Kansas  order  as  to  passenger  service  (1910) ;  Georgia  law 
as  to  speed  at  crossings  (1910) ;  South  Carolina  act  penahzing  failure 
to  pay  damages  promptly  (1910) ;  Arkansas  full  crew  law  (1911).^ 

The  Court  has  on  the  other  hand  held  invalid  State  laws  or  action 
on  this  subject  in  13  cases,  as  follows : 

Texas  act  as  to  failure  to  deliver  goods  on  tender  of  rate  named  in 
bill  of  lading  (1895) ;  Illinois  county-seat  mail  train  stop  acts  (1896) 
(1900) ;  Georgia  act  as  to  initial  carriers'  duties  (1905) ;  North 
Carolina  order  as  to  car  delivery  on  private  sidings  (1906) ;  Texas  act 
as  to  furnishing  cars  to  shippers  (1906) ;  Mississippi  order  stopping 
mail  trains  at  county  seats  (1906) ;  South  Carolina  order  as  to  train 
stops  (1907) ;  Missouri  act  as  to  train  stops  at  junction  (1910) ; 
Arkansas  act  requiring  supply  of  cars  to  shippers  (1910) ;  Indiana 
act  as  to  free  passes  for  printing  (191 1) ;  North  Carolina  act  penalizing 
refusal  to  receive  freight  (191 2) ;  Washington  act  as  to  hours  of  labor 
on  railroads  (1912).^ 

1  Dubuque  R.R.  Co.  vs.  Richmond  (1874)  10  Wall.  584;  Smith  vs.  Alabama  (1888)  124 
U.S.  465;  Nashville  etc.  R.R.  vs.  Alabama  (1888)  128  U.S.  96;  Louisville  etc.  R.R.  vs. 
Kentucky  (i8g6)  161  U.S.  677  ;  N.  Y.  N.  H.  &  H.  R.R.  vs.  New  York  (1897)  165  U.S.  628; 
Gladson  vs.  Minnesota  (1897)  166  U.S.  427;  Hennington  vs.  Georgia  (i8g6)  163  U.S.  299; 
Lake  Shore  etc.  R.R.  vs.  Ohio  (1S99)  173  U.S.  285;  Richmond  etc.  R.R.  vs.  R.  G.  Patter- 
son Tobacco  Co.  (1898)  169  U.S.  311;  Pittsburg  etc.  R.R.  vs.  West  Virginia  {1898)  172 
U.S.  32;  Mo.  etc.  R.R.  z>5.  McCann  (1899)  174  U.S.  580;  Chic.  etc.  R.R.  ?5.  Solan  (1898) 
169  U.S.  133  ;  Crossley  vs.  California  (1898)  168  V.S.  640;  Erb  vs.  Morasch  (1900)  177  U.S. 
584;  Wis.  etc.  R.R.  vs.  Jacobson  (1900)  179  L^.S.  287;  Erie  R.R.  vs.  Purdy  (1902)  185 
U.S.  148;  Penn.  R.R.  vs.  Hughes  (1903)  191  U.S.  477;  Martin  i'5.  Pittsburg  etc.  R.R. 
(1906)  203  U.S.  284;  Gulf  etc.  R.R.  vs.  Texas  (1907)  204  U.S.  403;  Mobile  etc.  R.R.  vs. 
Mississippi  (1908)  210  L".S.  187;  Mo.  Pac.  R.R.  vs.  Larabee  etc.  Co.  (1909)  211  U.S.  612; 
Mo.  Pac.  R.  R.  vs.  Kansas  (1910)  216  U.S.  262;  So.  R.  R.  vs.  King  (1910)  217  L^.S.  524; 
Atl.  etc.  R.R.  vs.  Mazursky  (1910)  216  U.S.  122;  Chic.  etc.  R.R.  vs.  Arkansas  (1911)  219 
U.S.  453. 

*Gulf  etc.  R.R.  vs.  Hefley  (1895)  158  U.S.  198;  111.  etc.  R.R.  vs.  Illinois  (1896)  163 
U.S.  142;    Cleveland   etc.  R.R.  vs.  Ilhnois    (1900)  177   U.S.    514;    Central  etc.  R.R.  vs. 


THE  POLICE   POWER  171 

The  Court  has  sustained  State  regulation  of  railroad  rates  in  eight 
cases,  as  follows : 

Iowa  freight  rate  act  (1873) ;  Maryland  railroad  earnings  act  (1875)  J 
Iowa  rates  (1877) ;  Wisconsin  rates  (1877) ;  Minnesota  rates  (1877) ; 
Illinois  rates  (1S77) ;  Mississippi  rates  (1886) ;  Arkansas  rates 
(i888).i 

It  has  held  invalid  three  cases  of  State  action  :  Illinois  long  and  short 
haul  law  (18S6) ;  Kentucky  long  and  short  haul  clause  of  State  con- 
stitution (1902);   Arkansas  rates  (1903). ^ 

Gram  Rate  Laws 

The  Court  has  upheld  every  grain  rate  law  brought  before  it,  as 
follows:  Illinois  grain  warehouse  rates  (1877);  New  York  grain 
elevator  rate  law  (1892) ;  North  Dakota  grain  elevator  rate  law  (1894) ; 
Minnesota  grain  elevator  license  law  (1901).^ 

.  Laws  as  to  Navigation 

The  Court  has  sustained  the  State  laws  (other  than  tax  acts)  con- 
trolling rivers,  ferries,  bridges  and  canals  in  eleven  cases  as  follows  : 

Wisconsin  dam  act  (1878) ;  Illinois  ferry  license  fee  (1883) ;  Illinois 
bridge  act  (1883) ;  California  bridge  act  (1885) ;  lUinois  lock  toll 
act  (1886) ;  Michigan  river  improvement  and  toll  act  (1887) ;  Oregon 
bridge  act  (1888) ;  Ohio  bridge  act  (1897) ;  Illinois  dock  act  (1903) ; 
South  Carolina  creek  obstruction  by  dam  act  (^905) ;  New  Jersey 
oyster  bed  act  (1907).'' 

It  has  held  invalid  the  three  following  State  laws :    Georgia  State 

Murphey  (1905)  ig6  U.S.  ig4 ;  McNeill  vs.  So.  R.R.  (1906)  202  U.S.  S43  ;  Houston  etc. 
R.R.  vs.  Mayer  (1906)  201  U.S.  321;  Miss.  R.R.  Com.  vs.  111.  etc.  R.R.  (1906)  203  U.S. 
335 ;  Atl.  etc.  R.R.  vs.  Wharton  (1907)  207  U.S.  328;  Herndon  vs.  Chic.  etc.  R.R.  (1910) 
218  U.S.  13s;  Roach  vs.  A.  R.  &  S.  F.  R.R.  (1910)  218  U.S.  159;  St.  L.  etc.  R.R.  vs. 
Arkansas  (igio)  217  U.S.  136;  Chic.  etc.  R.R.  vs.  United  States  (1911)  2ig  U.S.  486; 
So.  R.R.  vs.  Reid  (1912)  222  U.S.  424  (and  two  other  cases) ;  No.  Pac.  R.R.  vs.  Washing- 
ton (1912)  222  U.S.  370. 

'  Railroad  Co.  vs.  Fuller  (1873)  17  Wall.  560;  Railroad  Co.  vs.  Maryland  (1S75)  21  Wall 
456;  C.  B.  &  Q.  R.R.  vs.  Iowa  {1877)  94  U.S.  155;  Chic.  etc.  R.R.  vs.  Ackley  (1877)  94 
U.S.  179;  Winona  etc.  R.R.  vs.  Blake  (1877)  94  U.S.  180;  Pcik  vs.  Chic.  etc.  R.R.  (1877) 
94  U.S.  164;  Stone  vs.  Farmers  etc.  Co.  (1886)  116  U.S.  307;  Dow  vs.  Beidelman  (189S) 
125  U.S.  680. 

2  Wabash  etc.  R.R.  vs.  Illinois  (1886)  118  U.S.  557;  Louisville  etc.  R.R.  vs.  Eubank 
(1902)  184  U.S.  27  ;   Hanley  vs.  Kansas  City  etc.  R.R.  (1903)  187  U.S.  617. 

'Munn  vs.  Illinois  (1877)  94  U.S.  113;  iBudd  vs.  New  York  (1892)  143  U.S.  517;  Brass 
vs.  NorthUakota  (1894)  153  U.S.  391 ;  W.  W.  Cargill  Co.  vs.  Minnesota  (1901)  180U.S.  452. 

^  Pound  vs.  Turck  (1878)  95  U.S.  459;  Wigsins  Ferry  Co.  vs.  East  St.  Louis  (1883)  107 
U.S.  365;  Escanaba  Co.  vs.  ChicaRo  (1883)  107  U.S.  678;  Cardwell  vs.  Amer.  Bridge  Co. 
(1885)  113  U.S.  205;  Huse  vs.  Glover  (1886)  119  LT.S.  54?;  Sands  vs.  Manistee  Imp.  Co. 
(1887)  123  U.S  288;  Willamette  etc.  Co.  vs.  Hatch  (1888)  125  U.S.  i;  Lake  Shore  etc. 
R.R.  vs.  Ohio  (1897)  165  U.S.  365  ;  Manigaull  vs.  Springs  (1905)  199  U.S.  473;  Cummings 
vs.  Chicago  (1903)  188  U.S.  410;   Lee  vs.  New  Jersey  (1907)  207  U.S.  67. 


172  THE  POLICE  POWER 

compact  as  to  river  (1S76) ;  Kentucky  bridge  tolls  law  (1894) ;  Illinois 
ferry  for  transporting  cars  act  (1904).^ 

Pilot,  Harbor  and  Immigration  Acts 

The  Court  has  sustained  the  State  laws  dealing  with  pilots  and 
harbor  control  (other  than  tax  laws)  in  six  cases  as  follows  : 

New  York  pilot  law  (1881) ;  Alabama  harbor  improvement  law 
(1881) ;  Louisiana  coal  boat  gaugers  act  (1895) ;  Texas  pilot  law 
(1909) ;  Louisiana  pilot  law  (1909) ;   California  pilot  law  (191 2). ^ 

It  has  held  invalid  such  laws  in  three  cases :  California  immigrant 
bond  law  (1876) ;  Louisiana  vessel  inspection  law  (1877) ;  Georgia 
pilot  law  (1886). 3 

Marine  Liens,  Liabilities,  etc. 

The  Court  has  upheld  six  State  laws  as  follows  : 

New  Jersey  ship  lien  act  (1875) :  Indiana  act  as  to  death  from 
marine  torts  (1876) ;  Illinois  vessel  lien  and  attachment  act  (1886) ; 
Minnesota  log  lien  act  (1900) ;  Michigan  vessel  lien  act  (1907) ; 
Washington  act  as  to  lien  on  foreign  vessels  for  non-maritime  torts 

(i9i.i)-' 

Telegraph  Corporation  Regulation  Laws 

The  Court  has  sustained  the  following  four  State  laws  regulating 
telegraph  companies  (other  than  tax  laws) : 

Georgia  law  as  to  diligence  in  delivery  of  telegrams  (1896) ; 
Nebraska  law  for  recovery  of  excessive  charges  (1901) ;  Michigan  law 
as  to  failure  to  deliver  telegrams  (1910) ;  Virginia  law  as  to  failure  to 
transinit  promptly  (1911).^ 

From  the  foregoing  cases,  covering  in  general  all  the  State  laws 
made  in  the  exercise  of  the  State  police  power  which  have  been  at- 
tacked on  the  ground  of  interference  with  interstate  commerce,  it 
appears  that  106  laws  were  held  constitutional  and  thirty-eight  un- 
constitutional (of  which  twenty-nine  were  within  the  last  twenty-five 

1  South  Carolina  vs.  Georgia  (1876)  q3  U.S.  4;  Covington  &  Cinn.  Bridge  Co.  vs.  Ken- 
tucky (1894)  154  U.S.  204;    St.  Clair  Co.  vs.  Interstate  etc.  Co.  (1904)  192  U.S.  454. 

2  Wilson  vs.  McNamee  (1881)  102  U.S.  572;  Mobile  Co.  vs.  Kimball  (1881)  102  U.S. 
691 ;  Pittsburg  etc.  Co.  vs.  Louisiana  (1895)  156  U.S.  590;  Olsen  vs.  Smith  (1904)  195  U.S. 
332;  Leech  vs.  Louisiana  (1909)  214  U.S.  175;  Anderson  vs.  Pac.  etc.  Co.  (1912)  225  U.S. 
187. 

'Chy  Lung  vs.  Freeman  (1876)  92  U.S.  275;  Foster  vs.  New  Orleans  (1877)  94  U.S. 
246;    Spraigue  vs.  Thompson  (1886)  118  U.S.  90. 

^Edwards  vs.  Elliott  (1875)  21  Wall.  532;  Sherlock  vs.  Ailing  (1876)  93  U.S.  99;  John- 
son vs.  Chic.  etc.  Co.  (1886)  119  LT.S.  388:  Lindsay  &  Phelps  Co.  vs.  Mullen  (1900)  176  U.S. 
126;  Iroquois  etc.  Co.  vs.  DeLancy  etc.  Co.  (1907)  205  XJ.S.  354;  Old  Dominion  S.  S.  Co. 
vs.  Gilmore  (1907)  207  U.S.  398;   Martin  vs.  West  (1911)  222  U.S.  191. 

>  W.  U.  Tel.  Co.  vs.  James  (1896)  162  U.S.  650;  W.  U.  Tel.  Co.  vs.  Call  Pub.  Co.  (1901) 
181  U.S.  92 ;  W.  U.  Tel.  Co.  vs.  Commercial  MiUing  Co.  (1910)  218  U.S.  406;  W.  U.  Tel. 
Co.  vs.  Crovo  (1911)  220  U.S.  364. 


THE  POLICE   POWER  173 

years,  the  Court  thus  holding  constitutional  an  average  of  about  one 
law  each  year).  Of  these  thirty-eight  laws  so  found  to  be  beyond  the 
limits  of  the  State  police  power,  thirteen  were  so  held  as  regulating 
interstate  railroad  trains,  and  nine  as  regulating  interstate  commerce 
in  liquor ;  so  that  with  these  exceptions  the  Court  has  only  held 
invalid  sixteen  instances  of  exercise  of  the  State  police  power. 

Taxing  Power  Legislation 

In  addition  to  the  above  144  cases  there  have  been  about  115  cases 
in  which  State  laws  enacted  under  the  taxing  power  were  attacked  as 
interfering  with  interstate  commerce;  and  it  is  in  this  class  of  cases 
that  the  Court  has  been  obliged  to  hold  unconstitutional  the  largest 
number  of  State  laws.  Its  decisions  adverse  to  the  power  of  the  State 
legislatures  cannot,  however,  be  regarded  in  any  way  as  expressing 
divergency  between  the  opinion  of  the  Court  and  of  the  legislatures 
as  to  the  policy  of  the  statutes,  nor  as  expressing  any  ultra-conserva- 
tive or  unprogressive  attitude  of  the  Court  towards  modern  social  or 
economic  questions.  Rather  is  it  an  evidence  of  the  increasing  trend 
of  Congress  to  take  advantage  of  its  interstate  commerce  jurisdiction, 
and  to  legislate  on  many  matters  formerly  left  to  the  States  alone. 

The  following  tax  legislation  has  been  acted  upon  by  the  Court : 

Railroad  and  Steamship  Tax  Laws 

The  Court  has  upheld  the  following  ten  laws : 

Alabama  license  fee  (1873) ;  Pennsylvania  gross  receipts  tax 
(1873) ;  Delaware  tax  (1874) ;  Maine  franchise  excise  tax  (1S91) ; 
Pennsylvania  railroad  receipts  within  the  State  tax  (1892)  ;  Indiana 
railroad  tax  (1894)  ;  Pennsylvania  railroad  tolls  tax  (1895)  ;  Michigan 
railroad  property  tax  (1903) ;  New  York  franchise  tax  (1906) ;  Te.xas 
railroad  tax  (1894).^ 

It  has  held  invalid  the  following  eight : 

Pennsylvania  freight  tax  (1873) ;  Pennsylvania  ferry  company 
stock  tax  (1885) ;  Pennsylvania  steamship  gross  receipts  tax  (1887) ; 
Michigan  railroad  gross  receipts  (1887) ;  California  railroad  franchise 
tax  (1888) ;  Texas  railroad  gross  receipts  tax  (1908) ;  Colorado  rail- 
road tax  (1912) ;    Pennsylvania  license  tax  (1890).- 

'  Osborne  vs.  Mobile  (1873)  16  Wall.  479;  Phila.  &  Reading  R.R.  vs.  Pennsylvania 
(1873)  15  Wall.  284;  Minot  vs.  Phila.  etc.  R.R.  (1874)  18  Wall.  206;  Maine  vs.  Grand 
Trunk  R.R.  (1891)  142  U.S.  217;  Lehigh  Valley  R.R.  vs.  Pennsylvania  (1892)  145  U.S. 
192  ;  Pittsburg  etc.  R.R.  vs.  Backus  (1894)  154  Lf.S.  421 ;  Cleveland  etc.  R.R.  vs.  Backus 
(1894)  154  U.S.  439;  N.  Y.  etc.  R.R.  vs.  Pennsylvania  (1895)  158  U.S.  431;  Wisconsin 
etc.  R.R.  vs.  Powers  (1903)  191  U.S.  379;  N.  Y.  C.  etc.  R.R.  vs.  Miller  (1906)  202  L^S. 
584;   Reagan  vs.  Mercantile  Trust  Co.  (1894)  154  U.S.  413. 

2  Phila.  etc.  R.R.  vs.  Pennsylvania  (1873)  15  Wall.  232;  Gloucester  Ferry  Co.  vs.  Penn- 
sylvania (1885)  114  U.S.  196;  Phila.  etc.  S.  S.  Co.  vs.  Pennsylvania  (1887)  122  U.S.  326; 
Fargo  vs.  Michigan  (1887)  131  U.S.  250;  California  vs.  Central  Pac.  R.R.  (1888)  127  U.S. 
I ;  Galveston  etc.  R.R.  vs.  Texas  (1908)  210  U.S.  217;  A.  T.  &  S.  F.  R.R.  vs.  O'Connor 
(1912)  223  U.S.  280;   Norfolk  etc.  R.R.  vs.  Pennsylvania  (1890)  136  U.S.  114. 


174  THE   POLICE   POWER 

Pullman  and  Refrigerator  Car  Tax  Laws 

The  Court  has  upheld  five  State  laws  as  follows  : 

Kansas  palace  car  tax  (1891) ;  Pennsylvania  palace  car  tax  (1891) ; 
Colorado  refrigerator  car  tax  (1899) ;  Utah  refrigerator  car  tax  (1900) ; 
Mississippi  privilege  tax  on  Pullman  cars  (1903).^ 

It  has  held  invalid  the  following  three :  Tennessee  sleeping  car  tax 
(1886)  (1903) ;   Kansas  charter  fee  act  (1910).- 

Express  Company  and  Cab  Service  Tax  Laws 

The  Court  has  upheld  the  following  seven  laws : 

Missouri  express  company  business  tax  (1892) ;  Florida  express 
company  license  tax  (1897) ;  Ohio,  Indiana  and  Kentucky  express 
company  tax  acts  (1897)  (1897)  (1897) ;  New  York  franchise  tax 
on  cab  service  (1904) ;  Minnesota  express  company  tax  (1912).^ 

It  has  held  invalid  the  following  three :  Kentucky  express  company 
agent  license  act  (1891) ;  Indiana  foreign  express  company  property 
tax  (1904) ;   Oklahoma  express  company  gross  receipts  tax  (19 12).* 

Telegraph  atid  Telephone  Company  Tax  Laws 

The  Court  has  upheld  the  following  nine  State  laws : 

Massachusetts  telegraph  tax  laws  (1888)  (1891) ;  South  Carolina 
license  fee  (1894) ;  IMississippi  franchise  tax  (1894) ;  Indiana  tax 
law  (1896) ;  Pennsylvania  license  for  supervision  of  poles  and  wires 
(1903) ;  Pennsylvania  license  act  (1903) ;  Missouri  telegraph  tax  laws 
(1893)  (1903) ;  Pennsylvania  pole  license  act  (1904).^ 

It  has  held  invalid  the  following  eight : 

Florida  exclusion  act  (1878) ;  Texas  tax  on  messages  (1882) ; 
Indiana  regulation  law  (1887) ;  Ohio  tax  on  receipts  (1888) ;  Alabama 

1  Piillman's  etc.  Co.  vs.  Hayward  (i8qi)  141  U.S.  36;  Pullman's  etc.  Co.  vs.  Pennsyl- 
vania (i8gi)  141  U.S.  18;  Amer.  Refrig.  Transit  Co.  vs.  Hall  (1899)  174  U.S.  70;  Union 
Refrig.  Co.  vs.  Lynch  (1900)  177  U.S.  149;    PuUman  Co.  vs.  Adams  (1903)  189  U.S.  420. 

'  Pickard  vs.  Pullman  etc.  Co.  (1886)  117  U.S.  34;  Tennessee  vs.  Pullman  etc.  Co.  (1886) 
117  U.S.  51;  Allen  vs.  Pullman's  etc.  Co.  (1903)  191  U.S.  171;  Pullman  Co.  vs.  Coleman 
(1910)  216  U.S.  56. 

'  Pac.  Ex.  Co.  vs.  Seibert  (1S92)  142  U.S.  339;  Osborne  vs.  Florida  (1897)  164  U.S. 
650;  Adams  E.x.  Co.  t'5.  Ohio  (1897)  165  U.S.  194;  Adams  Ex.  Co.  vs.  Indiana  (1897)  165 
U.S.  225 ;  Adams  Ex.  Co.  vs.  Kentucky  (1897)  166  U.S.  171 ;  Penn.  R.R.  vs.  Knight  (1904) 
192  U.S.  21;   U.S.  Ex.  Co.  vs.  Minnesota  (1912)  223  U.S.  335. 

*  Crutcher  vs.  Kentucky  (1891)  141  U.S.  47  ;  Fargo  vs.  Hart  (1904)  193  U.S.  490;  Meyer 
rs.  Wells  Fargo  Co.  (1912)  223  U.S.  298. 

'=  W.  U.  Tel.  Co.  vs.  Massachusetts  (1888)  125  U.S.  530  (the  State  law  as  to  issue  of  in- 
junction, being,  however,  held  invalid) ;  Massachusetts  vs.  W.  U.  Tel.  Co.  (i8gi)  141  U.S. 
40;  Postal  Tel.  Co.  vs.  Charleston  (1894)  153  U.S.  692;  Postal  Tel.  Co.  vs.  Adams  (1895) 
155  U.S.  688;  \V.  U.  Tel.  Co.  vs.  Taggart  (1896)  163  U.S.  i;  Atlantic  etc.  Tel.  Co.  vs. 
Phila.  (1903)  190  U.S.  160;  W.  U.  Tel.  Co.  vs.  New  Hope  (1903)  187  U.S.  419;  St.  Louis 
vs.  W.  U.  Tel.  Co.  (1893)  148  U.S.  92;  W.  U.  Tel.  Co.  1-5.  Missouri  (1903)  190  U.S.  412; 
Postal  Tel.  Co.  vs.  New  Hope  (1904)  192  U.S.  55. 


THE    POLICE   POWER  175 

license  and  property  tax  (1S88) ;  Pennsylvania  tax  on  messages  outside 
of  State  (1888) ;  Alabama  tax  on  gross  receipts  (1889) ;  Pennsylvania 
license  ordinance  (1904).^ 

Foreign  Corporation  Tax  Laws 

The  Court  has  sustained  the  following  five  State  tax  laws : 

Pennsylvania  foreign  corporation  tax  law  (1888)  ;  New  York  tax 
on  franchise  or  business  (1892) ;  Ohio  filing  fee  (1894) ;  New  York  tax 
on  property  (1898) ;    Wisconsin  tax  (1903).- 

It  has  held  invalid  the  following  five : 

Pennsylvania  license  fee  for  office  in  State  (1890) ;  Kansas  foreign 
corporation  law  (1910) ;  Kansas  tax  on  capital  stock  of  foreign  cor- 
poration (1910) ;  Arkansas  tax  on  capital  stock  (1910) ;  Kansas 
charter  fee  (1910).^ 

Salesmen  Tax  Laws 

The  Court  has  upheld  the  following  seven  State  laws  taxing  or 
licensing  traveling  salesmen,  drummers,  etc. : 

Tennessee  tax  on  sewing  machine  peddlers  (1880) ;  Tennessee  license 
fee  on  merchandise  brokers  (1892) ;  Georgia  emigrant  agent  license 
tax  (1900) ;  Tennessee  merchants'  tax  (1904) ;  Georgia  tax  on  resident 
agents  of  foreign  meat  packers  (1905) ;  South  Dakota  liquor  drummers' 
license  tax  (1907) ;  Pennsylvania  retail  vendor  tax  (191 1).* 

It  has  held  invalid  the  following  fourteen : 

Missouri  and  Wisconsin  license  taxes  for  drummers  (1876)  (1877) ; 
Virginia  sewing-machine  vendors'  license  law  (1S81) ;  ^Michigan  non- 
resident liquor  salesmen  tax  (1886) ;  Maryland  drummer  tax  (1887) ; 
Tennessee  drummer  tax  (1887) ;  Texas  drummer  license  law  (1888) ; 
District  of  Columbia  commercial  agents'  license  tax  (1889) ;  Cali- 
fornia tax  on  agent  to  solicit  business  outside  State  (1890) ;  Pennsyl- 
vania drummer  act  (1894) ;    Tennessee  drummer  act  (1902) ;    North 

1  Pensacola  Tel.  Co.  vs.  W.  U.  Tel.  Co.  (1S7S)  96  U.S.  i ;  W.  U.  Tel.  Co.  vs.  Te.xas  (1882) 
los  U.S.  460;  W.  U.  Tel.  Co.  vs.  Pendleton  (1887)  122  U.S.  347  ;  Ratterman  vs.  W.  U.  Tel. 
Co.  (1888)  127  U.S.  411 ;  Leloup  vs.  Mobile  (1888)  127  U.S.  640;  W.  U.  Tel.  Co.  vs.  Penn- 
sylvania (188S)  128  U.S.  39;  W.  U.  Tel.  Co.  vs.  .\labama  (1889)  132  U.S.  472;  Postal  Tel. 
Co.  vs.  Taylor  (1904)  192  U.S.  64. 

2  Pembina  Con.  Silver  Min.  Co.  vs.  Pennsylvania  (1888)  125  U.S.  181;  Horn  Silver 
Min.  Co.  vs.  New  York  (1892)  143  U.S.  305;  .\shley  vs.  Ryan  (1894)  153  U.S.  436;  New 
York  vs.  Roberts  (1898)  171  U.S.  658;  Diamond  Glue  Co.  vs.  U.S.  Glue  Co.  (igo3)  187  U.S. 
611.  And  see  as  to  other  foreign  corporation  laws :  113  U.S.  727;  119  U.S.  no;  132  U.S. 
282. 

'Norfolk  etc.  R.R.  vs.  Pennsylvania  (1890)  136  U.S.  114;  International  Text  Book  Co. 
vs.  Pigg  (1910)  217  U.S.  91 ;  W.  U.  Tel.  Co.  vs.  Kansas  (1910)  216  U.S.  i  ;  Ludwig  vs.  W.  U. 
Tel.  Co.  (1910)  216  U.S.  146;    Pullman  Co.  vs.  Kansas  (1910)  216  U.S.  56. 

^Machine  Co.  vs.  Gage  (1880)  100  U.S.  676;  Ficklen  vs.  Shelby  Co.  etc.  (1892)  145 
U.S.  i;  Williams  vs.  Fears  (1900)  179  U.S.  270;  i\mer.  Steel  &  Wire  Co.  vs.  Speed  (1904) 
192  U.S.  500;  Kehrer  vs.  Stewart  (1905)  197  U.S.  60;  Delamater  vs.  South  Dakota  (1907) 
205  U.S.  93;    Banker  Bros.  Co.  vs.  Pennsylvania  (191 1)  222  U.S.  210. 


176  THE   POLICE   POWER 

Carolina  picture  drummer  license  act  (1903) ;   Pennsylvania  drummer 
act  (1906) ;  Alabama  license  for  sales  agents  act  (1910).' 

Imports  and  Miscellaneous  Tax  Laws 

The  Court  has  upheld  the  following  ten  State  laws  dealing  with 
property  from  other  States  or  in  transit : 

Louisiana  tax  on  coal  (1885) ;  New  Hampshire  tax  on  logs  (1886) ; 
Michigan  tax  on  floating  logs  (1903)  ;  Missouri  ordinance  specifying 
use  of  Trinidad  asphalt  (1904) ;  North  Carolina  license  tax  on  sewing- 
machines  shipped  C.  O.  D.  (1903) ;  North  CaroHna  meat  packing 
house  tax  (1906)  ;  New  York  stock  transfer  tax  (1907) ;  Alabama 
license  tax  on  buying  and  selling  futures  (1908) ;  Iowa  and  Indiana 
laws  as  to  commercial  feeding  stuffs  (1912)  (1912).^ 

It  has  held  invalid  the  following  four : 

Pennsylvania  tax  on  original  packages  (1878) ;  Wyoming  tax  on 
sheep  driven  through  the  State  (1903) ;  Tennessee  tax  on  property 
product  of  soil  of  other  State  (1908) ;  Kansas  act  prohibiting  gaspipe 
lines  (1911).^ 

Wharfage,  Vessels,  and  Immigrant  Tax  Laws 

The  Court  has  upheld  the  following  five  State  laws  : 

Iowa  wharfage  tonnage  toll  ordinance  (1877) ;  Mississippi  wharfage 
rates  ordinance  (1880) ;  Kentucky  wharfage  fee  ordinance  (1882) ;  West 
Virginia  wharfage  fees  (1883) ;  Louisiana  wharfage  rates  act  (1S87).* 

It  has  held  invalid  the  following  sLx : 

Alabama  vessels  tax  law  (1873) ;  New  York  and  Louisiana  immi- 
grant tax  law  (1876) ;  Maryland  discriminatory  wharfage  fees  act 
(1880) ;  New  York  immigrant  tax  law  (1883) ;  Louisiana  towboat 
license  tax  law  (1884) ;   Illinois  tugboat  license  tax  law  (1893).* 

1  Welton  vs.  Missouri  (1876)  gi  U.S.  275;  Morrill  vs.  Wisconsin  (1877)  154  U.S.  626; 
Webber  vs.  Virginia  (1881)  103  U.S.  344;  '\\'alling  vs.  Michigan  (1886)  116  U.S.  446;  Cor- 
son vs.  Maryland  (1887)  120  U.S.  502  ;  Robbins  vs.  Shelby  Co.  (1887)  120  U.S.  489 ;  Asher 
vs.  Texas  (1888)  128  U.S.  129;  Stoutenburgh  vs.  Hennick  (1889)  129  U.S  141 ;  McCall  vs. 
California  (1890)  136  U.S.  104;  Brennan  vs.  Titusville  (1894)  153  U.S.  289;  Stockard  vs. 
Morgan  (1902)  185  U.S.  27  ;  Caldwell  vs.  North  Carolina  (1903)  187  U.S.  622;  Rearick  vs. 
Pennsylvania  (1906)  203  U.  S.  507;    Dozier  vs.  Alabama  (1910)  21S  U.S.  124. 

2  Brown  w.  Houston  (1885)  114U.S.  622;  Coe  ?5.  Errol  (1886)  116  U.S.  517;  Diamond 
Match  Co.  vs.  Ontonagon  (1903)  188  U.S.  82  ;  Field  vs.  Barber  Asphalt  Co.  (1904)  194  U.S. 
618 ;  Norfolk  etc.  R.R.  vs.  Sims  (1903)  191  U.S.  441 ;  Armour  Packing  Co.  vs.  I.acy  (1906)  200 
U.S.  226;  Hatch  vs.  Reardon  (1907)  204  U.S.  152  ;  Ware  vs.  Mobile  Co.  (1908)  209  U.S.  405 ; 
Standard  etc.  Co.  vs.  Wright  (1012)  225  U.S.  540;    Savage  vs.  Jones  (191 2)  225  U.S.  501. 

3  Cook  vs.  Pennsylvania  (1878)  97  U.S.  566;  Kelleyj'j.  Rhoads  (1903)  188  U.S.  i  ;  I.  M. 
Darnell  &  Son  Co.  vs.  Memphis  (1908)  208  U.S.  113;  West  vs.  Kan.  Nat.  Gas  Co.  (1911) 
221  U.S.  229. 

4  Keokuk  etc.  Co.  vs.  Keokuk  (1877)  95  U.S.  80;  Vicksburg  vs.  Tobin  (1880)  100  U.S. 
430;  Cincinnati  etc.  Co.  vs.  Catlettsburg  (1882)  105  U.S.  559;  Parkersburg  etc.  Co.  vs. 
Parkersburg  (1883)  107  U.S.  691 ;   Ouachita  etc.  Co.  vs.  Aiken  (1887)  121  U.S.  444. 

^Morgan  vs.  Parham  (1873)  16  Wall.  471 ;  Henderson  vs.  Wickham  (1876)  92  U.S.  259; 
Guy  vs.  Baltimore  (1880)  100  U.S.  434;  New  York  vs.  Comp.  Gen.  Trans.  (1883)  107  U.S. 
59;  Moran  vs.  New  Orleans  (1884)  112  U.S.  69 ;  Harman  vs.  Chicago  (1893)  147  U.  S.  396. 


THE   POLICE   POWER  177 

Bridge  and  Ferry  Tax  Laws 

The  Court  has  upheld  the  following  State  laws:  Kentucky  bridge 
tax  (1891)  (1897)  (1899) ;  Illinois  bridge  stock  tax  (1900).^ 

GENERAL  SUMM.\RY 

The  result  of  the  above  analysis  of  the  decisions  of  the  Court  on 
the  statutes  passed  under  the  police  power  and  involving  obligation 
of  contract  and  interstate  comnnerce  (excluding  all  tax  legislation  and 
confining  the  inquiry  to  that  legislation  enacted  for  the  general  public 
welfare  as  distinguished  from  legislation  for  revenue  purposes) 
may  be  summed  up  as  follows. 

Of  the  158  cases  on  obligation  of  contracts,  131  statutes  were  held  con- 
stitutional and  twenty-se\'en  unconstitutional ;  but  of  these  twenty- 
seven,  sixteen  related  simply  to  legal  remedies  of  creditors  and  debtors, 
and  only  eleven  to  general  social  and  economic  questions. 

Of  the  144  cases  on  interstate  commerce,  106  statutes  were  held 
constitutional,  and  thirty-eight  unconstitutional ;  but  of  these  thirty- 
eight,  thirteen  related  to  interference  by  the  State  with  the  running 
of  interstate  trains,  and  only  twenty-live  to  other  general  social  and 
economic  questions. 

Of  a  total  of  302  cases,  therefore,^  only  thirty-six  State  statutes 
were  held  unconstitutional  in  forty  years,  relating  to  the  following 
broad  classes  of  questions  :  anti-lottery  laws  ;  anti-trust  and  corporate 
monopoly  laws ;  liquor  laws ;  food,  game,  oleomargarine  and  other  in- 
spection laws ;  regulation  of  banks,  telegraph  and  insurance  companies  ; 
cattle,  health  and  quarantine  laws  ;  regulation  of  business  and  property 
of  water,  gas,  electric  light,  railroad  (other  than  interstate  trains)  and 
other  public  service  corporations  ;  regulation  of  rates  of  public  service 
corporations,  grain  elevators ;  stockholders'  liability  laws ;  regulation 
of  business  of  private  corporations ;  negro-segregation  laws ;  labor 
laws  ;  laws  as  to  navigation,  marine  liens,  ferries,  bridges,  etc.,  pilots, 
harbors  and  immigration. 

In  other  words,  the  record  proves  that  the  United  States  Supreme 
Court  has  followed  and  still  follows  the  wise  policy  expressed  by  Justice 
Woodbury,  as  long  ago  as  1848,  in  the  following  pregnant  terms  : 

It  is  to  be  recollected  that  our  legislatures  stand  in  a  position  demand- 
ing often  the  most  favorable  construction  for  their  motives  in  passing  laws, 

'Henderson  Bridge  Co.  vs.  Henderson  (1891)  141  U.S.  679,  (1897)  166  U.S.  150,  (1899) 
173  U.S.  592;   Keokuk  Bridge  Co.  vs.  Illinois  (1900)  175  U.S.  626. 

2  In  this  summary,  there  is,  of  course,  a  slight  duplication  of  cases,  as  a  few  statutes 
involved  were  attacked  on  more  than  one  constitutional  ground;  and,  therefore,  several  of 
the  cases  cited  contained  decisions  on  more  than  one  point.  This  fact  does  not  affect  the 
argument,  for  if  the  Court  upholds  or  sets  aside  a  statute  on  two  grounds,  the  effect  is  the 
same  as  if  it  had  made  decisions  in  two  cases. 


1 78  THE  POLICE   POWER 

and  they  require  a  fair  rather  than  hypercritical  view  of  well-intended  pro- 
visions in  them.  Those  public  bodies  must  be  presumed  to  act  from  public 
considerations,  being  in  a  high  public  trust ;  and  when  their  measures 
relate  to  matters  of  general  interest,  and  can  be  vindicated  under  express 
or  justly  implied  powers,  and  more  especially  when  they  appear  intended 
for  improvements,  made  in  the  true  spirit  of  the  age,  or  for  salutary  reform 
in  abuses,  the  disposition  in  the  judiciary  should  be  strong  to  uphold  them.^ 

Or,  as  stated  more  recently  by  Justice  Brown  in  1896  : 

Where  the  police  power  is  invoked  in  good  faith  for  the  prohibition  of  a 
practice  which  the  legislature  has  declared  to  be  detrimental  to  the  public 
interests,  it  will  be  sustained,  wherever  it  can  be  done  without  the  impair- 
ment of  vested  rights.  .  .  .  The  general  rule  holds  good  that  whatever  is 
contrary  to  public  policy  or  inimical  to  the  public  interests  is  subject  to  the 
police  power  of  the  State,  and  within  legislative  control,  and  in  the  exertion 
of  such  power  the  legislature  is  vested  with  a  large  discretion,  which,  if 
exercised  bona  fide  for  the  protection  of  the  public,  is  beyond  the  reach  of 
judicial  inquiry.^ 

1  Planters'  Bank  vs.  Sharp  {1848)  6  How.  301,  3ig. 

2  L.  &  N.  R.R.  vs.  Kentucky  (1896)  161  U.S.  677,  700-701. 


IV 
CORPORATIONS 

THE  ABUSE  OF  THE   CORPORATION   CHARTER 

By  Don  E.  Mowry  of  the  Milwaukee  Bar 

(From  Central  Law  Journal,  January  i8,  1907) 

The  corporation  is  the  almost  universal  form  of  organization  used  in 
conducting  business  to-day ;  and  in  one  sense  the  corporation  problem  is 
the  business  problem  of  our  country.  The  question  is  a  very  wide  one,  and 
only  a  few  phases  of  corporate  control  can  be  presented  here.  —  Editor's 
Note. 

The  wave  of  legislative  reform,  which  has  taken  on  such  gigantic 
proportions  within  the  last  few  years,  has  finally  culminated  in  an  active, 
aggressive,  and  altogether  too  zealous  campaign  against  the  industrial 
corporation.  We  appear  to  have  gone  "reform  mad,"  and  in  our 
efforts  to  curb  the  power  of  capital  and  allied  corporate  interests,  we 
have  failed,  utterly,  to  realize  that  the  trend  of  modern  business  makes 
the  corporation  an  imperative  necessity.  This  outcry  is  largely  due 
to  the  fact  that  public  policy  has  not  taken  the  proper  steps  towards 
bringing  about  a  regulation  of  corporate  interests.  The  transforma- 
tion from  the  partnership  to  the  business  corporation  has  been  so 
rapid  that  we,  who  are  vitally  interested  in  legislative  reform,  have 
failed  to  see  that  the  real  danger  lies  not  so  much  in  the  corporation  it- 
self as  in  the  granting  of  the  corporation's  charter.  To-day  five  men 
can  sit  around  a  table,  put  one  dollar  in  the  center,  organize  a  corpora- 
tion calling  for  a  million  dollars  worth  of  capital,  repocket  the  dollar, 
and  go  home  after  sending  a  certificate  of  incorporation  to  the  secre- 
tary of  state,  with  a  million  dollar  enterprise  ready  to  launch.  Such 
are  the  laws  of  every  state  of  the  union  with  the  exception  of  Massa- 
chusetts. Some  states  have  gone  even  a  step  farther.  They  have 
made  their  laws  so  general  in  character  that  companies  have  been 
organized  for  the  express  purpose  of  incorporating  enterprises  which 
do  not  intend  to  do  business  within  the  particular  state.  These  states 
do  not  hesitate  to  put  the  great  seal  of  the  state  upon  a  concern  which 

179 


i8o  CORPORATIONS 

lies,  deliberately  lies,  the  moment  it  leaves  the  office  of  the  secretary 
of  state.  Such  states  are,  in  particular,  New  Jersey,  Delaware,  West 
Virginia,  South  Dakota  and  Nevada.  There  are  many  other  states 
which  favor  corporations,  more  or  less,  but  these  states  are  the  most 
bold,  the  most  open  in  their  methods,  and  the  most  eager  to  obtain 
corporation  fees. " 

In  Delaware,  the  secretary  of  state  referred  the  writer's  letter  of 
inquiry  concerning  the  laws  of  incorporation  in  that  state  to  the  Dela- 
ware Corporation  Company,  of  Wilmington.  Are  not  the  laws  of 
Delaware  self-explanatory?  Wliy  is  it  necessary  for  the  secretary 
of  state  to  refer  such  a  general  letter  to  a  company  making  it  a  practice 
to  "guarantee  incorporation,"  unless,  perhaps,  he  was  interested  in 
some  way  with  the  company?  In  South  Dakota,  the  secretary  of 
state  has  drawn  up  a  letter  of  recommendation  for  the  South  Dakota 
Corporation  Charter  Company.     He  says,  in  part : 

The  company  has  organized  a  large  number  of  corporations  under  the 
laws  of  this  state,  and  I  have  had  and  now  have  frequent  opportunity  to 
examine  incorporation  papers  prepared  and  filed  in  this  office  by  said  com- 
pany and  tind  that  it  is  very  particular  in  all  cases  to  comply  with  the  re- 
quirements of  the  statutes  of  this  state. 

These  are  some  of  the  open  and  above-board  methods  which  are 
being  used  by  officers  of  the  states  in  order  to  further  their  own  personal 
welfare.  The  incorporation  companies  in  these  several  states  have 
been  over-anxious  to  secure  the  incorporation  of  companies  within 
their  respective  states.  The  legal  press  is  filled  with  advertisements, 
encouraging  suspicious  enterprises  to  avail  themselves  of  the  cheap 
cost,  liberal  laws,  and  freedom  from,  liability,  which  the  particular 
state  in  question  offers.  Such  conspicuous  phrases  as :  "Incorporate 
in  South  Dakota,"  "The  Corporation  Laws  of  the  State  of  Nevada 
offer  the  greatest  inducements,"  and  "We  beat  New  Jersey,"  are  not 
uncommon  advertisements  of  our  enterprising  western  states. 

The  New  Jersey  laws  relating  to  business  corporations  began  to 
show  the  mfluence  of  special  interests  in  1896  when  the  general  cor- 
poration act  was  passed.  This  act  makes  it  possible  for  any  company, 
wherever  located,  to  secure  a  charter  through  agents  within  the  state. 
A  residence  office  must  be  maintained,  and  one  director  must  be  a 
legal  resident  of  the  state.  The  trust  companies,  organized  for  that 
specific  purpose,  act  as  the  local  agent,  the  home  office,  and  furnish  the 
required  resident  director.  While  it  is  necessary  for  the  state  director 
to  hold  three  shares  of  stock,  the  organizing  company  generally  gives 
such  agent  of  the  trust  company  the  necessary  stock,  with  the  under- 
standing, however,  that  it  is  to  be  transferred  back  to  the  owners 
who  are  residents  of  other  states  in  many  instances.  A  complete  set 
of  forms,  necessary  for  incorporation,  including  proxies,  transfers  of 


CORPORATIONS  i8i 

subscription,  waiver  of  notice  of  meeting  of  incorporators  and  sub- 
scribers, etc.,  are  furnished  by  the  guarantee  and  trust  companies. 
The  New  Jersey  law  requires  that  the  corporation  must  place  in  a 
conspicuous  place  before  its  home  office,  which  must  be  in  the  state, 
the  name  of  the  company.  At  the  entrance  of  the  New  Jersey  Cor- 
poration Agency,  in  Jersey  City,  there  are  over  700  such  names. 
The  stockholders'  meeting  must  be  held  at  the  registered  office  in 
New  Jersey,  but  inasmuch  as  the  law  allows  absent  stockholders  to 
vote  by  proxy,  this  provision  has  little  or  no  effect.  The  most  striking 
provision  in  the  New  Jersey  law  is  that  foreign  corporations  must  pay 
the  same  taxes,  ffiies,  penalties,  licenses,  fees  and  other  obligations,  as 
are  required  of  New  Jersey  corporations  in  other  states.  In  this 
provision.  New  Jersey  has  greatly  favored  her  own  corporations,  and 
has  practically  silenced  other  states  in  their  efTorts  to  impose  stringent 
requirements  upon  her  corporations. 

The  corporation  laws  of  Delaware  were  revised  some  years  after 
those  of  New  Jersey  went  into  effect,  with  the  avowed  purpose  of  out- 
witting the  various  corporation  companies  in  New  Jersey.  It  is  clearly 
evident  that  the  promoters  of  the  present  vicious  law  have  succeeded 
in  so  doing.  Any  company  incorporated  under  the  laws  of  the  State  of 
Delaware  may  hold  all  of  the  meetmgs  of  its  stockholders  and  directors 
outside  of  the  state,  wherever  it  is  provided  in  its  by-laws,  and  further- 
more, all  of  the  original  records  of  the  company  may  be  kept  at  its 
principal  office  outside  of  the  state.  The  company  may  issue  all  the 
bonds  it  desires  without  any  further  authority  from  the  state  than 
that  granted  in  its  charter,  and  without  being  subject  to  tax  thereon. 
All  or  any  part  of  the  capital  stock  may  be  made  full  paid  for  real  or 
personal  property,  or  for  services  as  well  as  for  cash,  and  stock  that  is 
once  made  full  in  this  or  any  other  manner  is  not  subject  to  any  further 
assessment,  not  even  for  wages  and  taxes.  The  pri\'ate  property  of 
the  stockholders  is  not  hable  for  corporate  debts  to  any  extent  what- 
ever. Nothing  is  required  to  be  paid  in  when  the  company  is  organized. 
Merely  $1000  has  to  be  subscribed,  and  this  may  be  made  full  paid 
for  property  as  above  suggested,  paid  in  one  lump  sum  or  paid  in 
such  amounts  and  installments  as  called  for  by  the  board  of  directors 
after  the  company  is  organized.  Charters  once  granted  under  the 
laws  of  the  State  of  Delaware  are  absolutely  perpetual  and  unalterable, 
except  at  the  instance  of  the  parties  owning  the  franchise,  and  Delaware 
is  the  only  state  in  the  union  that  grants  such  charters.  A  Delaware 
charter  does  not  limit  one  to  a  single  object,  but  one  may  have  au- 
thority in  the  same  charter  to  transact  as  many  different  branches  of 
business  as  one  may  desire,  in  fact,  one  may  carry  on  any  and  every 
branch  of  business  except  banking.  The  company  may  even  have 
trust  company  powers. 

The  annual  tax  upon  companies  incorporated  under  the  laws  of 


1 82  CORPORATIONS 

Delaware  is  as  fellows :  In  the  case  of  telephone,  telegraph,  oil,  pipe 
line,  railroad,  electric  light,  heat,  light  and  power,  water  power,  canal, 
cable  and  express  companies,  there  is  no  tax  upon  the  capital  stock 
or  bond  issues  of  the  company,  or  on  business  done  outside  of  the 
state.  In  the  case  of  other  companies,  such  as  mercantile,  mining  and 
manufacturing  companies,  there  is  no  tax  upon  the  amount  of  capital 
authorized  in  the  charter,  nor  upon  the  stock  issued,  but  simply  a 
tax  of  fifty  cents  on  each  $1000  of  capital  actually  paid  in.  The  annual 
state  tax  is,  therefore,  just  one-half  that  of  New  Jersey.  The  local 
trust  companies  maintain  the  Delaware  office,  the  Delaware  director, 
keep  the  company  advised  on  all  the  requirements  of  the  law,  look 
after  its  annual  report,  and,  in  fact,  perform  all  the  duties  incumbent 
upon  a  local  representative. 

J.  G.  Guy,  of  the  Delaware  Trust  Company,  writes  me  as  follows : 

If  you  will  send  us  on  the  enclosed  form,  entitled,  "  Memoranda  for  Pre- 
paring the  Certificate  of  Incorporation  and  By-Laws,"  the  name  of  your 
proposed  company ;  the  names  and  addresses  of  at  least  three  parties  who 
will  act  as  incorporators  (none  of  whom  need  be  residents  of  this  state), 
the  amount  of  authorized  capital  you  desire,  par  value  of  the  shares,  and  a 
brief  statement  of  the  object  and  purpose  of  the  company,  we  will  prepare 
you  a  charter  and  all  the  papers  connected  with  the  organization  of  your  com- 
pany, and  forward  to  you  for  execution  by  your  parties.  After  they  are 
executed  and  returned  to  us,  we  wiU  have  the  charter  granted,  organize 
your  company  by  proxy  here,  electing  the  board  of  directors  whom  you 
will  designate  and  then  forward  the  records  of  organization  to  you,  with  a 
draft  of  directors'  minutes  outlining  the  action  necessary  to  be  taken  by 
your  directors  at  their  first  meeting,  which  may  be  held  wherever  you  desire. 
This  wiU  complete  the  organization  of  your  company. 

The  prime  movers  in  such  procedure  believe  that  a  corporation 
organized  in  Delaware  commences  business  with  a  charter  entitled  to 
respect ;  that  the  laws  are  based  upon  the  experience  of  all  states 
affording  opportunity  to  form  corporations,  and  are  framed  so  as  to 
invite  confidence  and  investment.  Broad  and  liberal  powers  are 
conferred  upon  corporations,  at  a  "minimum  cost,"  making  it  possible 
for  them  to  do  business  in  any  part  of  the  world.  This  is  essential 
from  the  incorporation  company's  point  of  view. 

The  general  corporation  laws  of  West  Virginia  are  more  elaborate 
than  either  those  of  New  Jersey  or  Delaware,  but  their  character  and 
purport  is  about  the  same.  The  present  secretary  of  state,  if  he  is  in 
league  with  corporation-promoting  companies,  has  succeeded  in 
"covering  his  tracks  to  good  advantage."  Inasmuch  as  the  tohe  of 
the  West  Virginia  laws  runs  parallel  to  those  of  the  two  states  just 
mentioned,  it  will  not  be  necessary  to  go  into  details  concerning  the  law 
and  its  workings. 

In  Nevada,  where  the  state  bank  and  trust  company  of  Carson  City 


CORPORATIONS  183 

is  the  chief  exponent  of  liberal  laws,  there  is  no  franchise  tax.  In 
this  respect  the  Nevada  law  differs  from  the  laws  of  New  Jersey,  Dela- 
ware and  West  Virginia.  The  annual  franchise  tax  on  a  capitaliza- 
tion of  $1,000,000  in  West  Virginia  is  $410;  Delaware,  $500;  New 
Jersey,  $1000 ;  Nevada,  nothing.  Corporate  purposes  are  unlimited ; 
annual  meetings  may  be  held  outside  of  the  state,  if  an  office  and  resi- 
dent agent  is  maintained  within  the  state ;  the  right  to  consolidate  in- 
corporations or  merge  their  interests  is  permitted,  the  fee  being  simply 
on  the  amount  of  gross  capital  above  that  of  the  combined  incorpora- 
tions ;  the  duration  of  corporations  is  unlimited ;  the  capital  stock 
may  be  made  absolutely  non-assessable. 

"The  important  consideration,"  says  the  Mercantile  and  Financial 
Times  of  November  2,  1901,  "after  the  value  of  incorporation  is, 
what  states  offer  the  best  inducements,  in  the  questions  of  protection 
and  expense,  for  obtaining  charters?  When  these  two  important 
matters  are  thoroughly  considered,  we  would  say  South  Dakota." 
This  statement  seems  to  be  borne  out  when,  during  the  very  year  1901, 
1013  companies  were  incorporated  in  South  Dakota.  "In  nineteen 
cases  out  of  twenty,"  writes  the  president  of  the  South  Dakota  Cor- 
poration Charter  Company,  "we  are  able  to  get  the  charter  into  the 
mails  within  ten  hours  after  the  application  is  received  here."  South 
Dakota  has  an  eye  for  business.  The  main  points  of  advantage, 
from  the  incorporator's  point  of  view,  are : 

1 .  There  is  absolutely  no  tax  of  any  kind,  unless  the  company  owns 
property  in  the  state.  This  is  of  no  inconsiderable  importance  when, 
for  example,  the  annual  franchise  tax  on  a  company  organized  with 
an  authorized  capitalization  of  one  million  dollars,  varies  from  S410 
in  West  Virginia  to  $1250  in  New  York. 

2.  The  cost  of  incorporation  varies  from  Si  50  in  Delaware  to 
$3333.33  in  Pennsylvania.  In  South  Dakota,  the  entire  expense, 
including  the  maintenance  of  such  office  as  may  be  required,  rarely 
exceeds  $75. 

3.  Branch  offices  may  be  maintained  outside  of  the  state,  where  all 
business  may  be  transacted. 

4.  Stock  need  not  be  subscribed  before  securing  a  charter. 

5.  Charters  may  be  renewed  indefinitely. 

Is  it  any  wonder  then  that  the  people  who  are  suffering  from  the 
present  lawlessness  of  the  corporations  should  begin  to  ask  for  legisla- 
tive reform  ?  It  is  their  savings  that  are  being  taken  to  promote  enter- 
prises which  are  not  organized  upon  a  sound  business  basis,  and  it  is 
justice  that  the  state  should  protect  these  unfortunates  who  are  unable 
to  see  the  weakness  in  such  organizations.  But  in  our  zeal  for  reform 
we  must  not  lose  sight  of  the  fact  that  the  corporation  as  such  is  not 
an  evil.  The  law  must  be  reorganized.  The  law  must  compel  every 
corporation  to  limit  its  advertised  capital  to  the  actual  value  of  its 


i84  CORPORATIONS 

assets.  The  facts  must  not  be  juggled  in  such  a  manner  as  to  cause 
confusion.  The  company  must  be  forced  to  tell  the  truth  from 
beginning  to  end.  We  cannot  longer  tolerate  annual  reports  to  the 
secretary  of  state  which  consist  of  four  or  five  general  statements. 
Such  action  upon  the  part  of  the  state  will  not  inspire  confidence  in 
corporate  enterprises.  Many  of  the  malpractices,  so  general  and 
widespread  at  the  present  moment,  must  be  done  away  with.  It  is 
never  good  policy  to  deprive  the  states  of  power,  but  in  the  matter  of 
incorporating  business  enterprises  the  state  cannot  act  freely  and  in- 
dependently. This  power,  therefore,  must  be  delegated  to  the  national 
government,  for,  if  several  states  enact  good,  fair  and  just  laws,  other 
states  may  place  barriers  of  such  a  nature  that  it  will  be  impossible 
for  the  corporation,  organized  under  these  fair  laws,  to  do  business  in 
the  obstinate  state  or  states.  For  the  benefit  of  the  people  as  a  whole 
the  states  must  be  deprived  of  the  right  to  grant  charters.  Such  an 
act  will  rid  the  country  of  bandits  and  freebooters  and  insure  stability 
in  financial  circles.  "No  fact  of  industry  is  more  obvious  than  that 
modern  business  has  outgrown  and  wholly  disregards  state  lines,  and 
that  the  jurisdiction  of  a  single  state  as  applied  to  the  operations  of  a 
great  interstate  business,  are  futile  and  even  harmful."  Corpora- 
tions are  destined,  in  many  instances,  to  go  beyond  the  proper  super- 
vision and  control  of  the  state  which  gave  them  existence.  The  best 
of  state  laws  will  never  do  away  with  the  present  abuses.  Congress 
alone  can,  with  safety,  provide  a  method  by  which  reasonable  combina- 
tion may  be  permitted.  The  relative  merits  of  a  federal  license  or  a 
national  incorporation  law  are  beyond  question. 


UNIFORM  FOREIGN  CORPORATION  LAWS  ^ 
By  Franklin  A.  Wagner  of  the  New  York  Bar 

(A  Paper  Read  at  the  Fifteenth  Annual  Convention  of  the  Commercial 
Law  League,  at  Narragansett  Pier,  on  July  20,  1909) 

The  growth  of  new  and  diverse  legislation  in  the  various  States  has 
become  a  positive  burden  to  all  who  are  called  upon  to  acquire  a 
comparative  knowledge  of  the  statutes. 

The  introduction  of  bills,  often  for  "home  consumption"  only, 
has  surfeited  our  Legislatures,  and  unless  protected  by  a  self-reliant 
governor  who  has  the  courage  to  wield  his  veto  powers,  the  result  of 
each  legislative  session  is  the  addition  of  one  or  two  volumes  of  session 
laws  to  the  lawyer's  library. 

Multiply  this  output  by  forty-six  times  the  number  of  legislative 

'  Reprinted  from  the  New  York  Law  Journal,  July  27,  1909. 


CORPORATIONS  185 

sessions  that  have  been  held  since  the  last  official  compilation  of 
statutes  in  each  State  and  add  over  2000  decisions  of  the  higher  courts 
in  the  last  dozen  years,  and  you  have  a  fair  idea  of  the  work  involved 
in  attempting  to  interpret  and  comply  with  the  laws  of  all  the  States 
on  the  single  subject  of  "foreign  corporations." 

The  growing  importance  of  corporation  law  to  the  commercial  lawyer 
challenges  his  attention  to  the  subject,  and  the  foreign  corporations 
law  is  the  phase  of  it  with  which  he  is  most  often  called  upon  to  deal. 
Its  practice  is  most  profitable,  as  you  all  know,  owing  to  the  immense 
amount  of  litigation  and  capital  involved.  The  corporate  form  is 
the  modern  way  of  doing  business ;  indeed,  without  it,  cooperation 
on  a  large  scale  would  be  impossible. 

A  competent  authority  has  computed  that  over  ninety  per  cent  of  the 
industries  of  the  United  States  are  controlled  by  corporations.  In 
1800  there  was  one  corporation  to  every  2500  people.  In  1909  there 
is  one  to  each  180  people.  To-day  there  are  probably  500,000  corpora- 
tions doing  business  in  the  United  States. 

In  the  first  six  months  of  1909,  461 1  new  companies  were  incor- 
porated under  the  laws  of  the  State  of  New  York  alone.  This  was  a 
gain  of  nearly  1000  corporations  over  the  first  six  months  of  1908. 
Many  of  these  companies  will  do  business  in  two  or  more  States,  a  fact 
which  serves  to  accentuate  the  importance  of  the  foreign  corporation 
laws. 

The  Federal  Congress  has  exercised  the  power  to  create  corporations 
for  certain  purposes,  but  such  power  is  limited  by  the  constitution. 
Whether  Congress  may  lawfully  create  merely  industrial  corporations 
by  virtue  of  its  constitutional  authority  to  regulate  interstate  and 
foreign  commerce,  is  a  mooted  question.  Certainly  the  framers 
of  the  constitution  never  contemplated  such  an  interpretation  of  the 
so-called  "commerce  clause."  Down  to  the  present  time  the  State 
has  been  regarded  as  the  proper  body  to  charter  and  regulate  business 
corporations. 

We  cannot  disregard  the  tendency  of  the  times,  however,  toward 
centralization.  The  new  Federal  corporation  tax,  which  is  frankly  a 
regulating  measure  masquerading  under  the  guise  of  a  revenue  pro- 
ducing act,  is  the  entering  wedge.  "A  national  law  authorizing  the 
formation  of  corporations  to  carry  on  interstate  business,"  said 
Attorney-General  Wickersham  in  a  recent  address,  "seems  to  be  the 
inevitable  result  of  economic  conditions.  .  .  .  Such  a  law  will  logi- 
cally follow  the  tarifT  tax  on  corporations." 

With  the  corporation  taxing  power  safely  lodged  in  the  Federal 
government,  and  a  national  incorporating  act  in  force  for  corporations 
doing  an  interstate  business,  it  is  only  a  step  to  the  complete  national 
control  of  all  corporations.  Thus  the  problem  of  the  foreign  corpora- 
tion would  be  merged  in  the  greater  one. 


1 86  CORPORATIONS 

Such  a  step  will  logically  and  inevitably  follow  unless  the  States 
adopt  fairer  and  more  uniform  regulations.  The  attitude  of  the 
Federal  government  has  been  largely  brought  about  by  the  errors  of 
omission  and  commission  of  the  States  themselves.  Their  foreign 
corporation  laws  are  of  a  heterogeneous  type  —  no  two  are  alike ; 
in  some  of  the  States  they  are  so  loose  that  their  own  citizens  are  not 
protected,  in  others  they  are  so  drastic  that  in  the  interests  of  commerce 
they  are  intelligently  unenforced.  These  statutes  give  rise  to  a  multi- 
plicity of  technical  litigation,  and  the  decisions  in  one  State  are  of 
little  value  as  precedents  in  the  others.  The  corporations  themselves 
would  be  the  first  to  welcome  such  a  change. 

The  only  escape  from  Federal  regulation,  in  this  decade  or  the  next, 
will  be  the  getting  together  of  the  State  Legislatures  on  a  broad  uni- 
form law  regulating  the  status  and  conduct  of  all  corporations  doing 
business  within  their  borders. 

It  is  settled  by  abundant  authority  that  the  domicile  of  a  corporation 
is  the  legal  jurisdiction  of  its  origin.  It  cannot  migrate,  and  the  only 
status  it  acquires  in  another  State  is  by  the  law  of  comity,  or  express 
statutory  provisions. 

Common  law  remedies  are  inadequate.  A  curious  fallacy  has  marked 
the  attitude  of  the  common  law  courts  toward  foreign  corporations. 
In  England,  as  early  as  1729,  it  was  held  that  a  foreign  corporation 
could  bring  suit  in  its  courts,  but  could  not  be  sued.  As  late  as  1819 
the  New  York  Court  of  Chancery  held  that  a  foreign  corporation  could 
not  be  sued  in  the  New  York  courts.  Massachusetts  followed  this 
decision  in  1834,  and  England  upheld  it  as  late  as  1872.  These  de- 
cisions were  based  on  the  common  law  rule  that  process  against  a 
foreign  corporation  must  be  served  on  the  head  office.  A  State  court 
could  not  by  any  method  acquire  jurisdiction  to  render  a  personal 
judgment  against  a  foreign  corporation.  Such  a  conclusion  was 
reached  by  a  too  close  adherence  to  the  fiction  of  artificiality  and  the 
middle  age  idea  of  the  non-migratory  character  of  a  corporation. 

This  strange  perversion  of  justice,  which  prevented  a  creditor  from 
bringing  suit  in  his  home  State  against  a  foreign  corporation,  was  the 
earliest  condition  to  be  remedied  by  statute.  This  was  accomphshed 
by  a  provision  requiring  a  foreign  corporation  to  appoint  an  agent 
within  the  State  authorized  to  accept  ser\'ice  of  process.  Such  a 
provision  has  now  been  adopted  in  every  State. 

Statutory  regulations  of  the  business  of  foreign  corporations  are 
directed,  generally  speaking,  to  securing  the  rights  of  domestic  creditors, 
stockholders  or  others  dealing  with  such  corporations.  There  is  no 
reason  why  foreign  corporations  should  enjoy  any  greater  privileges 
or  immunities  than  those  accorded  to  domestic  corporations  organized 
for  similar  purposes.  It  would  seem,  therefore,  perfectly  proper  for 
the  State  to  regulate  foreign  corporations  in  the  matters  of : 


CORPORATIONS  187 

(i)  Admission, 

(2)  Taxation, 

(3)  Service  of  process, 

(4)  State  supervision  to  secure  solvency  or  publicity  as  to  condition, 
and 

(5)  State  regulation  for  the  protection  of  local  creditors. 

But  such  regulation  should  be  fair  and  impartial,  and  the  penalties 
for  non-compliance  should  not  be  out  of  all  proportion  to  the  offense 
committed. 

It  is  a  common  statutory  provision  in  many  of  the  States  that  foreign 
corporations  shall  be  subject  to  all  the  liabilities,  restrictions  and 
duties  imposed  upon  domestic  corporations  of  like  character,  and  shall 
have  no  other  or  greater  powers.  Once  admitted  a  foreign  corporation 
is  entitled  to  "the  equal  protection  of  the  laws,"  and  to  as  favorable 
treatment  as  a  domestic  corporation. 

One  of  the  most  difficult  points  to  be  decided  is  what  is  meant  by 
"doing  business"  from  the  wording  of  the  statutes.  This  question 
has  been  the  subject  of  much  judicial  interpretation  of  no  very  en- 
lightening nature.  Speaking  generally,  a  corporation  is  within  the 
statute  when  it  continuously  conducts  and  concludes  a  series  of  trans- 
actions constituting  a  substantial  portion  of  its  regular  business  within 
the  State.  In  most  States  a  single  transaction  or  occasional  business 
transactions  are  not  sufficient  to  require  a  certificate  of  authority. 
The  mere  employment  of  traveling  agents  to  take  orders,  which  are 
approved  and  filled  at  the  home  office,  by  weight  of  authority  does  not 
come  within  the  purview  of  the  statute,  since  the  contracts  are  made 
outside  the  State. 

On  the  other  hand,  the  Supreme  Court  of  Michigan  has  recently 
held  that  the  installation  of  a  new  elevator  and  the  repair  of  an  old 
one  was  doing  business  within  the  State.  If  the  Michigan  decision 
is  followed  every  corporation  engaged  in  the  sale  and  erection  of 
machinery  over  the  country  would  have  to  go  to  the  trouble  and 
expense  of  taking  out  a  license  in  every  State  where  it  has  made  or 
may  make  a  sale.  This  would  inflict  a  most  serious  hardship  on 
manufacturers  of  machinery  —  a  hardship  which  is  not  required  for 
the  protection  of  the  citizens  of  the  State  where  the  machinery  is 
erected. 

Anti-trust  acts  within  the  last  few  years  have  been  passed  in  many 
of  the  western  and  southwestern  States.  These  acts  are  often  loosely 
drawn,  and  the  courts  have  not  always  upheld  them  as  applied  to 
foreign  corporations.  In  Illinois,  Texas,  Missouri  and  some  other 
States  foreign  corporations  violating  these  acts  may  be  heavily  fined 
and  prohibited  irom  doing  business  in  the  States. 

The  statutory  requirements  for  obtaining  permission  for  a  foreign 
corporation  to  do  business  vary  greatly  in  the  different  States,  and 


1 88  CORPORATIONS 

might  well  be  one  of  the  features  upon  which  uniformity  should  and 
could  easily  be  secured.  In  some  States,  as  in  New  York,  a  verified 
statement  is  required,  accompanied  by  a  sworn  copy  of  the  certificate 
of  incorporation.  In  other  States,  as  in  Illinois,  the  sworn  statement 
must  be  accompanied  by  a  certified  copy  of  the  certificate  of  incorpora- 
tion. In  Idaho  a  foreign  corporation  must  file  a  certified  copy  of  its 
certificate  both  with  the  Secretary  of  State  and  the  recorder  of  the 
county  where  the  corporation  is  doing  business  before  it  can  maintain 
an  action  to  enforce  any  contract  entered  into  by  it  while  thus  in 
default.  Some  States  do  not  require  a  statement  of  the  amount  of 
property  owned  by  the  corporation  or  the  amount  of  capital  proposed 
to  be  invested  in  the  State,  while  others,  as  Illinois  and  Ohio,  require  a 
statement  of  the  amount  and  nature  of  the  property  owned  .by  the 
corporation,  wherever  situated,  and  the  proportion  to  be  employed 
within  the  State. 

There  is  no  uniformity  in  the  matter  of  license  or  admission  fees. 
This  tax  theoretically  corresponds  to  the  organization  tax  required  of 
domestic  corporations,  but  owing  to  its  higher  rate  in  some  States, 
foreign  corporations  are  placed  at  a  decided  disadvantage.  This  is 
true  in  New  York  where  the  rate  is  two  and  one-half  times  the  organiza- 
tion tax  on  domestic  corporations. 

On  the  basis  of  8500,000  capital  employed  by  a  foreign  corporation 
within  the  State,  this  tax  varies  from  nothing  in  New  Jersey,  to  $10 
in  Maine,  $50  in  Delaware,  $100  in  Virginia,  $200  in  Massachusetts, 
$500  in  Missouri,  $545  in  Illinois  and  Texas.  S625  in  New  York,  and 
$1666.66  in  Pennsylvania. 

The  annual  tax,  that  is,  the  franchise  tax  or  tax  for  the  privilege  of 
doing  business  as  a  corporation,  also  varies  greatly  in  the  different 
States.  In  some  States  it  is  imposed  upon  the  entire  authorized  capital 
stock,  wherever  situated,  as  in  Arkansas,  California  and  Colorado, 
while  in  others  it  is  on  the  amount  of  capital  employed  within  the 
State,  as  in  Alabama,  Ohio  and  New  York.  In  Virginia  there  is  no 
annual  tax  on  foreign  corporations,  while  domestic  corporations  are 
taxed.  In  many  States  there  is  no  annual  franchise  tax  on  either 
domestic  or  foreign  corporations.  In  New  Jersey  the  tax  is  retaliatory, 
that  is,  by  the  statutes  the  same  tax  is  imposed  on  a  foreign  corporation 
doing  business  in  New  Jersey  as  a  New  Jersey  corporation  would  be 
required  to  pay  in  the  State  where  the  foreign  corporation  is  domiciled, 
but  this  feature  of  the  Tax  Law  has  never  been  enforced,  and  foreign 
corporations  escape. 

Foreign  corporations  are  frequently  required  to  stipulate,  as  a  con- 
dition precedent  to  obtaining  a  license,  not  to  sue  in  or  remove  any 
suit  to  a  Federal  court,  on  the  ground  of  diversity  of  citizenship,  local 
prejudice  or  other  basis  of  Federal  jurisdiction.  A  State  can  exclude 
a  foreign  corporation  for  removing  a  case  to  the  Federal  courts,  and 


CORPORATIONS  189 

such  a  statute  is  constitutional.  It  cannot,  of  course,  prevent  re- 
moval. 

In  a  recent  case  in  Kentucky  it  was  held  that  the  insurance  commis- 
sioner under  a  statute  which  made  it  his  duty  to  revoke  the  authority 
of  an  insurance  company  to  do  business  in  the  State  if  it  removed  a 
cause  to  the  Federal  court  could  not  be  enjoined  from  revoking  the 
license. 

This  statute  has  also  been  upheld  in  the  Supreme  Court  of  the  United 
States  in  the  case  of  Security  ^lutual  Life  Ins.  Co.  vs.  Prewitt,  recently 
quoted  by  Attorney-General  Wickersham,  to  show  the  unlimited  extent 
of  the  power  of  the  States  recognized  by  the  Supreme  Court. 

Such  a  provision  should  find  no  place  in  the  statutes  of  any  State 
and  a  uniform  foreign  corporation  law,  permitting  the  remo\'al  of 
certain  causes  to  the  Federal  courts,  would  do  much  to  settle  this 
controversy. 

The  penalties  imposed  upon  foreign  corporations  for  failure  to 
qualify  should  be  the  subject  of  uniform  legislation.  Many  State 
statutes  are  explicit  as  to  the  results  of  non-compliance,  and  a  strict 
construction  of  these  statutes  leaves  little  for  judicial  decision.  Thus 
in  Oregon  it  was  recently  held  that  a  foreign  corporation  neglecting  to 
comply  could  not  recover  on  a  contract  made  within  the  State.  In 
Pennsylvania,  Illinois,  Texas  and  Wisconsin  contracts  made  in  the 
State  by  a  foreign  corporation  that  has  failed  to  qualify  are  absolutely 
void.  In  New  York  contracts  made  in  the  State  are  unenforcible  in 
the  State  courts,  whether  sued  upon  by  the  corporation,  by  its  assignee 
or  by  those  claiming  under  either.  In  Massachusetts  such  contracts 
are  not  invalid,  but  no  recovery  can  be  had ;  in  New  Jersey  no  action 
can  be  maintained ;  in  Virginia  a  fine  is  imposed. 

Many  statutes,  however,  are  silent  as  to  the  result  of  non-compliance, 
and  as  to  what  rights  a  guilty  foreign  corporation  may  assert  the 
authorities  appear  to  be  irreeoncilable.  Such  a  case  resolves  itself 
into  the  assertion  of  corporate  pri\dleges  by  a  group  of  individuals 
without  legal  sanction ;  in  other  words,  the  question  is  one  of  un- 
authorized corporate  action,  analogous  to  the  unauthorized  action 
of  domestic  de  facto  corporations.  Under  such  conditions,  in  Kansas 
a  foreign  corporation  is  not  refused  relief  for  an  invasion  of  its  property 
rights ;  in  North  Dakota  a  party  who  had  received  the  benefits  of  a 
contract  with  a  foreign  corporation  was  denied  the  right  to  collaterally 
attack  its  non-compliance ;  but  as  a  drastic  check  upon  total  disregard 
of  the  law,  in  New  Jersey  full  liability  was  imposed  on  the  associates 
to  the  extent  of  holding  them  liable  as  partners,  and  the  corporation 
was  not  recognized. 

In  some  States,  in  addition  to  the  usual  penalties,  fines  are  imposed 
ranging  from  $100  to  $10,000,  and  the  agent  may  be  guilty  of  a  mis- 
demeanor. 


I90  CORPORATIONS 

When  a  corporation  has  strictly  complied  with  the  statutes  of 
another  State  it  should  be  permitted  to  enjoy  all  the  privileges  and 
immunities  of  a  domestic  corporation.  This  is  not  true  in  several 
of  the  States. 

In  New  York  an  attachment  may  issue  against  the  property  of  a 
foreign  corporation  within  the  State  (as  was  held  in  Robertson  vs. 
Ongley  Elec.  Co.,  82  Hun,  585,  588),  "however  solvent  it  may  be, 
and  however  great  its  ability  to  pay  all  claims  against  it  on  demand. 
It  is  not  within  its  power  to  prevent  a  creditor  or  a  fictitious  claimant 
even  from  obtainmg  an  attachment."  Neither  can  a  foreign  corpora- 
tion in  New  York  obtain  a  liquor  license. 

In  Pennsylvania  a  foreign  corporation  may  be  made  a  garnishee 
in  an  execution  attachment,  and  it  is  also  liable  to  foreign  attachment. 
With  certain  exceptions  it  cannot  own  land  in  fee  simple. 

In  Alabama,  New  York  and  many  other  States,  when  an  attachment 
is  sued  out  in  favor  of  a  foreign  corporation,  security  for  costs  of  the 
suit  must  be  given.  Process  of  attachment  may  issue  in  Alabama 
against  any  foreign  corporation  ha\ing  property  in  the  State. 

In  New  Jersey  foreign  corporations  which  have  obtained  authority 
are  not  subject  to  attachment  merely  because  they  are  foreign  corpora- 
tions, but  if  they  are  not  qualified  they  are  subject  to  attachment  at 
all  times.     The  New  Jersey  rule  would  seem  to  be  the  fair  one. 

The  problem  of  the  foreign  corporation  has  given  no  little  trouble 
to  the  Legislatures  and  the  courts  of  the  various  States.  The  growth  of 
commerce  and  the  increasing  number  of  corporations  that  are  carrying 
on  business  in  two  or  more  States  has  compelled  the  States,  one  by  one, 
to  pass  statutes  regulating  such  corporations.  Maine  and  Oklahoma 
are  the  latest  States  to  adopt  foreign  corporation  laws. 

Unquestionably  much  hardship  has  been  inflicted  on  foreign  cor- 
porations when,  through  ignorance  of  the  local  laws,  or  through  failure 
to  understand  their  drastic  scope,  they  have  entered  into  contracts 
which,  because  of  these  statutes,  they  were  unable  to  enforce.  In 
some  States  the  statutes  are  too  lenient ;  in  others  too  severe.  In  few 
States  have  they  been  comprehensively  worked  out  to  adequately 
meet  present  day  needs.  A  uniform  law  would  confer  a  lasting  benefit 
both  upon  the  States  and  the  corporations.  Such  a  law  should  embody 
the  following  features : 

1.  Define  what  is  "  doing  business." 

2.  Provide  a  simple  procedure  for  qualification. 

3.  Name  the  Secretary  of  State  the  agent  upon  whom  process  may  be 
served. 

4.  Abolish  the  license  fee,  excise  or  bonus  tax. 

5.  Tax  foreign  corporations  on  the  amount  invested  in  the  State  on  the 
same  basis  and  at  the  same  rate  as  domestic  corporations. 

6.  Require  an  annual  report  of   condition,  including  a  statement   of 


CORPORATIONS  191 

assets  and  liabilities,  naming  the  otficers   and  directors  of  the  company, 
and  its  officers  and  agents  located  in  the  State. 

7.  Affirmatively  grant  the  privilege  to  use  the  Federal  courts  in  proper 
causes. 

8.  Remove  drastic  penalties  and  substitute  reasonable  fines. 

9.  Abolish  attachment  on  the  mere  ground  that  it  is  a  foreign  corpo- 
ration. 

10.  In  all  other  respects  place  foreign  corporations  on  a  par  with 
domestic  corporations. 

Such  a  uniform  foreign  corporation  law  might,  I  judge,  properly  be 
sponsored  by  this  great  organization.  In  any  attempt  to  secure  such 
uniformity  the  Commercial  Law  League  of  America  should  be  first  in 
the  field.  Its  plan  could  be  worked  out  in  committee  and  presented 
for  adoption  in  each  State  through  its  own  legislative  organization. 
It  should  also  seek  the  aid  and  cooperation  of  such  powerful  bodies 
as  the  State  Boards  of  Commissioners  on  Uniform  State  Laws,  the 
"House  of  Governors"  now  being  organized,  and  the  National  Civic 
Federation.  The  times  are  auspicious,  as  the  subject  of  "Uniform 
Legislation"  is  in  the  air  all  over  the  country,  foreshadowing  an  era 
of  permanent  legislative  reform.  I  am  sanguine  that  the  benefits 
resulting  from  the  adoption  of  a  uniform  law  alYecting  foreign  corpora- 
tions throughout  the  United  States  would  be  of  far  reaching  importance 
not  only  to  the  commercial  lawyer,  but  to  the  cause  of  good  govern- 
ment and  commercial  prosperity. 


GOVERNMENTAL   REGULATION  OF  SECURITIES  ISSUES 

By  Arthur  U.  Ayres 

(From  the  Political  Science  Quarterly,  December,  1913) 

Until  very  recently  it  has  been  tacitly  agreed  that  a  man  runs  his 
own  risk  in  choosing  securities  in  which  to  invest,  goes  into  such  a 
project  with  his  eyes  open,  and  deserves  no  governmental  protection 
from  swindlers  and  companies  of  unsound  organization.  The  last 
two  or  three  years,  however,  have  indicated  a  decided  change  in 
opinion.  There  has  been  a  realization  that  the  individual  investor, 
the  banks,  and  the  sound  corporations  all  need  the  protection  that  a 
supervisory  board  or  official  can  afford  in  detecting  the  impostor  and 
excluding  him  from  the  market.  Following  the  lead  of  Kansas, 
eighteen  states  have  passed  "blue-sky"  laws,  and  other  states  have 
such  legislation  now  under  consideration.  The  general  purpose  of 
these  laws  is  to  force  those  who  intend  to  offer  stocks  and  bonds  to 
the  public  to   make  known   to   some  proper  state  authority   their 


192  CORPORATIONS 

organization,  plan  of  business  and  the  purpose  for  which  the  income 
from  the  securities  will  be  used.  If  this  official  does  not  believe  that 
the  project  offers  a  fair  opportunity  to  the  investor  he  may  forbid  the 
proposed  sale.  This  power  has  been  variously  given  to  the  bank  com- 
missioner, the  secretary  of  state,  or  to  a  specially  created  securities 
commissioner.^ 

The  first  steps  in  this  direction,  however,  antedated  the  Kansas 
blue-sky  law.  The  first  corporations  to  which  this  principle  was  ap- 
plied were  public  utility  companies,  which  have  received  the  lion's 
share  of  attention  in  restrictive  legislation.  As  early  as  1908  clauses 
began  to  appear  in  the  new  public-service  laws  providing  for  com- 
mission regulation  of  securities  issues.  The  evolution  of  this  legislation 
can  be  traced  with  profit.  Beginning  with  the  establishment  of  com- 
missions with  an  undefined  power  of  advising  changes  in  the  service  and 
rates  of  common  carriers,  the  states  have  year  by  year  increased  the 
powers  of  these  commissions,  extended  their  jurisdiction  to  all  public 
utilities,  and  broadened  the  scope  of  their  duties.  Naturally  enough 
the  consumers'  interests  were  the  first  to  receive  protection  ;  the  most 
recent  laws  have  extended  this  protection  to  the  interests  of  investors 
as  well.  This  is  achieved  by  giving  to  public  officers  power  to  pass 
upon  stock  and  bond  issues  of  companies  under  their  jurisdiction. 

In  this,  as  in  other  progressive  legislation,  the  provisions  in  different 
states  vary  widely,  some  allowing  the  corporations  great  freedom  of 
issue,  others  putting  a  large  share  of  the  responsibility  upon  the  regu- 
lative boards.  Since  1908  some  of  the  most  backward  states  have 
stepped  to  the  very  forefront  in  this  matter,  modeling  their  laws 
after  the  notable  examples  of  New  York  and  Wisconsin.  Other  states 
that  have  long  possessed  commissions  with  complete  power  to  fix 
rates  and  command  improvement  of  service  have  not  yet  seen  the 
necessity  of  regulating  the  issue  of  securities. 

In  191 2  this  supervisory  power  existed  in  thirteen  states :  Georgia, 
Massachusetts,  Michigan,  Kansas,  Nebraska,  New  York,  Wisconsin, 
California,  Maryland,  New  Jersey,  New  Hampshire,  Ohio  and  Ver- 
mont. In  these  jurisdictions  it  is  required  that  the  corporation  file  a 
statement  showing  (i)  the  amount  and  character  of  the  securities 
to  be  issued,  (2)  the  purpose  for  which  they  are  issued,  (3)  the  terms 
and  (4)  the  total  assets  and  liabilities  of  the  corporation.  The  com- 
mission will  then  grant  a  certificate  authorizing  the  issue,  stating  the 
amount  allowed,  the  character,  purpose  and  terms.  Often  the  cor- 
poration has  not  been  allowed  to  issue  the  full  amount  petitioned  for. 
For  example,  in  New  York  (first  district)  in  1908  —  the  first  year  in 
which  this  law  had  effect  —  stock  and  bond  issues  amounting  to 

■  Corporation  Commissioner :  Arizona,  Oregon,  Montana.  Bank  Commissioner :  Ar- 
kansas, Idaho,  Kansas,  Maine,  Missouri,  Vermont.  Secretary  of  State :  Iowa.  Bank  Ex- 
aminer :  North  Dakota,  West  Virginia.    Securities  Cominission :  Michigan,  South  Dakota. 


CORPORATIONS  193 

$155,000,000  were  asked  for,  while  permission  was  granted  to  issue  only 
$70,000,000.  Yet  the  companies  are  ultimately  more  than  repaid 
through  the  increased  value  of  their  securities  in  the  eyes  of  the 
investing  public.     Mr.  R.  V.  Johnson  writes : 

Regulation  of  the  stock  and  bond  issues  .  .  .  has  worked  lo  the  benefit 
of  the  corporations  themselves,  in  that  it  is  made  easier  to  obtain  money 
for  extensions  and  improvements.  Commissioner  Halford  Erickson  [Wis- 
consin] said  recently,  "We  know  from  experience  that  investors  often 
attach  a  great  deal  of  importance  to  governmental  regulation  of  securities. 
...  In  fact,  investors  often  buy  securities  on  the  strength  of  the  existence 
of  such  regulation  alone,  without  inquiring  into  its  character  and  scope. ^ 

It  is  evident,  however,  that  grave  danger  lies  in  such  a  blind  con- 
fidence on  the  part  of  the  investors.  The  enacting  laws  usually  state 
that  such  regulation  may  not  be  construed  as  a  guarantee  that  the 
stocks  and  bonds  issued  are  a  good  investment.  The  commission 
is  under  a  duty  to  protect  the  investor  from  blue-sky  sales  and  ex- 
cessive flotations,  but  it  cannot  be  held  responsible  for  errors  in  judg- 
ment or  for  unforeseen  circumstances  which  might  make  the  securities 
worthless.  This  also  applies  to  the  recent  blue-sky  laws.  In  fact 
the  power  of  these  commissions  is  much  less  than  the  average  investor 
supposes ;  for,  as  a  rule  —  except  in  New  York  —  the  commission 
cannot  refuse  to  grant  a  certificate  for  new  issues  if  the  provisions  of  the 
law  have  been  complied  with.  In  other  words,  it  cannot  pass  upon 
the  social  necessity  of  the  purpose  for  which  the  income  from  the  stocks 
and  bonds  will  be  used ;  it  can  only  determine  how  great  an  issue  will 
be  needed  for  the  purpose  proposed  by  the  corporation,  based  on  the  es- 
timated earnings  of  the  new  enterprise.  The  fact  was  well  brought  out 
in  a  decision  of  the  Wisconsin  Commission  in  regard  to  a  petition  of 
the  Southern  Wisconsin  Railroad  Company.-  The  petitioner  wished  to 
issue  $300,000  of  bonds  for  (i)  renewal  of  ecjuipment,  (2)  extension  of 
lines,  (3)  erection  of  a  power  plant  and  (4)  payment  of  its  floating  debt. 
The  commission  did  not  wish  to  issue  the  certificate,  but  held  that 
under  the  law  it  was  required  to  do  so;  for  the  company  had  "com- 
plied with  all  the  requirements  ...  by  furnishing  such  statements 
and  evidence  as  the  commission  deemed  pertinent  to  the  inquiry." 
In  Minnesota  the  court  declared  unconstitutional  a  statute  giving 
power  to  grant  or  refuse  a  bond  issue  at  ydW  as  an  attempt  to  delegate 
legislative  powers.^ 

In  New  York  alone  is  this  condition  remedied;  not,  it  is  true,  by 
allowing  a  free  decision  on  the  part  of  the  public  ser\dce  commission, 
but  by  an  inclusion  in  the  law  of  a  detailed  statement  of  purposes  for 

'  "Workings  of  the  Wisconsin  Commission,"  Public  Service,  April,  igi2/  p.  130. 

2  Report  of  1907-8,  Vol.  II. 

'State  vs.  Great  Northern  Railroad,  iii  N.W.  289. 


194  CORPORATIONS 

which  issues  can  be  made.  The  commission  may  refuse  all  petitions 
that  are  not  within  the  scope  of  these  provisions.  For  example,  in 
1909  in  the  second  district,  applications  were  refused  for  issue  of  scrip 
dividends,  capital  stock  and  bonds  for  the  reimbursement  of  the 
treasury,  on  the  ground  that  these  purposes  were  not  provided  for 
in  the  original  law. 

A  new  departure  such  as  this,  creating  new  conditions,  often  by 
its  logical  development  makes  necessary  a  new  governmental  policy. 
When  a  commission  determines  that  the  investment  will  "provide 
for  a  fair  return  on  the  stocks,  bonds  and  other  securities  .  .  .  offered 
for  sale,"  ^  it  is  in  some  measure,  although  not  legally,  bound  to  protect 
the  company  against  competing  enterprises  whose  presence  in  the  field 
may  diminish  the  returns  on  the  original  investment.  This  view  of 
the  question  is  new.  Its  significance  has  been  realized  in  full  only 
in  New  York ;  but  in  Wisconsin  it  has  been  recognized  in  part.  In 
the  former  state  all  railroads  and  public  utility  companies  must  obtain 
from  the  commission  a  certificate  of  "public  convenience  and  neces- 
sity" before  entering  upon  any  new  construction,  whether  it  be  an 
extension  of  an  existing  plant  or  the  erection  of  a  new  plant.  In  Wis- 
consin a  similar  certificate  must  be  obtained  by  all  common  carriers. 
In  this  case  it  is  entirely  at  the  option  of  the  commission  to  grant  or 
refuse  application,  and  this  certificate  is  in  no  way  connected  with 
the  certificate  authorizing  any  new  security  issue  that  may  be  needed 
to  build  the  extension  or  new  plant.  In  both  states,  if  the  field  is 
already  occupied  by  a  company  of  adequate  capacity,  the  com- 
missions have  refused  to  allow  a  competitor  to  enter.  Some  of  the 
Wisconsin  decisions  are  most  interesting,  showing  as  they  do  the  frank 
recognition  of  monopoly  as  the  best  condition  for  public  utility  service. 

Railroads  are  generally  natural  monopolies  and  the  unnecessary  paralleling 
of  lines  only  results  in  the  end  in  consolidation  or  arrangements  whereby 
the  public  benefits  of  competition  .  .  .  yield  to  the  inevitable  increase  in 
the  cost  of  transportation  made  necessary  by  the  cost  of  operating  and 
maintaining  two  railways  where  one  is  adequate.  .  .^ 

It  is  well  understood  that  the  theory  of  the  law  is  that  utility  enter- 
prises are  generally  monopohstic  in  their  character.  .  .  ^  It  was  one  of 
the  purposes  of  the  statute  to  insure  the  public  against  the  undertaking  of 
unusually  hazardous  enterprises.  It  was  doubtless  contemplated  to  pre- 
vent the  projection  of  lines  for  speculative  purposes  and  through  which 
the  innocent  purchaser  would  be  made  to  suffer  losses.  .  .  .* 

The  legislature  doubtless  intended  that  through  the  administration  of 
this  law,  destructive  competition  and  rate  wars  .  .  .  should  be  prevented.* 

'  Kansas  House  Bill  No.  006  (Session  191 1).  In  Kansas,  securities  are  passed  upon  by 
the  bank  commissioner  of  the  state. 

'  Report  of  the  Wisconsin  Railroad  Commission,  Vol.  Ill  (1908-9),  p.  289. 

^Ibid.  Vol.  IV  (1909-10),  p.  60. 

^Ibid.  Vol.  V  (1910),  p.  473.  ^Ibid.  p.  475. 


CORPORATIONS  195 

The  Milwaukee  and  Fox  River  Valley  Railway  Company  petitioned 
for  a  certificate  of  public  convenience  and  necessity  for  an  interurban 
railway.  The  commission  granted  the  certificate  with  the  decision : 
"While  the  project  involves  many  uncertainties,  these  uncertainties 
do  not  create  a  risk  of  such  magnitude  as  to  justify  the  commission 
in  denying  promoters  and  investors  the  privilege  of  assuming  it.  .  .  ."  ^ 
The  territory  to  be  covered  by  this  company  was  already  practically 
entirely  served  by  the  Milwaukee  Northern  Railway,  and  the  decision 
is  therefore  interesting  as  showing  that  the  commission  will  allow  com- 
petition where  it  believes  there  is  business  enough  for  two.  The 
opinion  went  on  to  say,  however,  that  there  would  be  no  rate-cutting 
or  destructive  competition  in  this  instance,  because  the  commission  has 
the  power  to  fix  rates r 

One  noteworthy  fact  in  connection  with  this  problem  is  that  in 
Wisconsin  the  "public  convenience  and  necessity"  idea  does  not  extend 
to  telephone  companies.  "These  alone  are  left  in  a  class  by  them- 
selves, supposed  to  be  governed  by  the  ordinary  laws  of  competition."  ^ 
No  explanation  for  this  exception  is  offered  either  by  the  commission 
or  by  the  original  law.  It  is  also  to  be  noted  that  there  is  a  possible 
appeal  from  the  commission's  decision  to  the  circuit  court  of  Dane 
county,  and  from  there  to  the  state  supreme  court. 

In  New  York  the  principle  above  outlined  is  definitely  extended  to 
all  public-utilities  companies.  One  example  will  suffice  to  illustrate 
the  principle  upheld.  The  Hudson  River  Electric  Company  petitioned 
for  permission  to  exercise  rights  granted  them  by  a  franchise  issued  by 
South  Glens  Falls  to  light  the  streets  of  that  village.  The  public 
service  commission  decided : 

The  village  of  South  Glens  Falls  is  now  being  served  and  has  for  years  last 
passed  been  served  with  the  electric  light  of  the  United  Gas,  Electric  Light 
&  Fuel  Company  of  Sandy  Hill  and  Fort  Edward,  N.Y.  .  .  .  The  said 
company  has  a  plant  sufficiently  adequate  to  supply  proper  service  to  the 
said  village  .  .  .  and  no  reason  exists  why  the  applicant  should  be  allowed 
to  light  therein.'' 

The  commission  then  ordered  the  existing  company  to  furnish  light 
at  the  rate  proposed  by  the  applicant. 

*  Ibid.     Decision,  Milwaukee  and  Fox  River  Valley  Railway  Co. 

*Some  states,  far  from  rccoRnizing  the  monopolistic  character  of  public  utilities,  have 
attempted  to  maintain  competition  among  them.  For  example,  Missouri  has  a  statute 
preventing  any  railroad  from  owning,  controlling,  or  operating  a  parallel  or  competing  line. 
Section  41  of  the  Oklahoma  stale  constitution  prohibits  public  service  corporations  from 
holding  or  controlling  in  any  manner  whatever  the  stock  of  any  competitive  corporation 
engaged  in  the  same  kind  of  business.  In  the  light  of  the  Wisconsin  and  New  York  attitude 
on  this  question,  it  would  seem  best  to  allow  rate-regulated  competition  if  the  field  can 
afford  business  enough  for  two,  but  to  prohibit  in  the  first  place  the  construction  of  the 
competitor  if  the  field  is  clearly  inadequate  to  provide  fair  profits  for  a  duplicate  ecjuipment. 

'  Report  of  the  Wisconsin  Railroad  Commission,  Vol.  IV  (igog-igio),  p.  Oo. 

<  Report  of  the  New  York  Public  Service  Commission  (2d  dist.),  1909,  Vol.  I,  p.  660. 


196  CORPORATIONS 

In  another  decision  of  the  New  York  commission  a  further  develop- 
ment is  seen.  When  the  North  Shore  Electric  Light  and  Power 
Company  asked  for  permission  to  furnish  power  in  a  territory  already 
served  by  the  Port  Jefferson  Electric  Light  Company,  it  was  shown 
that  the  latter's  service  was  inadequate,  that  the  plant  needed  improve- 
ments and  additions,  that  rates  were  discriminatory,  and  that  the  busi- 
ness methods  were  lax.  The  commission  denied  the  application, 
provided  the  Port  Jefferson  Company  present  wuthin  ten  days  a  resolu- 
tion of  the  board  of  directors  promising  without  complaint  to  obey 
any  order  of  the  commission  within  sLx  months  from  date,  requiring 
additions,  improvements,  etc.  The  company  furnished  the  resolution 
requested  and  the  application  of  the  competitor  was  refused.^  In  a 
similar  case  decided  some  time  previous,  the  recommendations  of  the 
commission  following  the  refusal  of  the  competitor's  application 
amounted  to  a  practical  renewal  of  the  entire  plant  and  equipment  as 
well  as  a  reorganization  of  the  company's  whole  business  system. 

Thus  in  states  existing  side  by  side  we  may  outline  the  evolution  of 
commission  regulation  :  (i)  states  without  a  railroad  or  public  utilities 
commission  of  any  sort  (six) ;  (2)  states  having  power  to  enforce 
changes  in  service,  rates  and  equipment  (twenty-eight) ;  (3)  states 
that  may  regulate  security  issues  for  new  enterprises  but  may  not  pass 
upon  the  social  necessity  of  the  undertaking  for  which  they  are  issued 
(eleven) ;  (4)  one  state  that  may  in  addition  determine  whether  public 
convenience  or  necessity  demands  the  new  project,  if  the  applicant 
is  a  common  carrier  (Wisconsin) ;  (5)  one  state  that  may  apply  this 
test  to  all  public  utilities,  and  use  the  power  to  grant  or  refuse  such  a 
certificate  as  a  whip  to  compel  adequate  service  from  the  resident  com- 
pany (New  York). 

Blue-sky  legislation  apphes  to  all  companies  the  principle  evolved 
as  a  middle  step  in  pubUc  utihty  regulation.  It  will  be  interesting 
to  see  whether  other  steps  of  this  series  are  ever  given  a  universal  appli- 
cation, whether  a  commission  be  given  power  to  fix  prices  and  regulate 
the  output  of  industries  (as  was  indeed  suggested  in  the  last  presiden- 
tial campaign),  and  whether  the  monopoly  principle  be  recognized 
here  too  as  in  the  case  of  public  utilities. 

1  Report  of  the  New  York  Public  Service  Commission  (2d  dist.),  1910,  Vol.  I,  pp.  782, 
783- 


CORPORATIONS  197 

INTERLOCKING   CORPORATIONS 
By  Harold  M.  Bowman  of  the  New  York  Bar 

(From  the  Michigan  Law  Review,  February,  1913) 

Once  more  a  striking  phrase  has  suddenly  become  a  part  of  our 
everyday  speech  and  with  it  a  cause,  though  it  is  as  yet  a  more  or  less 
indefinite  cause,  has  found  a  measure  of  prosperity.  It  is  an  effective 
phrase,  one  in  which  an  advertising  agent  or  a  seeker  of  poHtical  catch 
words  must  take  a  pure  delight.  "Interlocking  directorates."  You 
do  not  have  to  hear  it  often  to  find  yourself  thinking  of  the  boards  of 
directors  of  many  of  the  big  corporations  in  the  land  as  mortised  and 
fitted  to  work  in  perfect  unison  —  an  interlocking,  interchangeable, 
intercorporate  marvel  of  the  joiner's  art.  Nor  does  the  imagination 
far  outstrip  the  facts.  In  every  city  of  any  size  how  many  interlocking 
corporations  are  there?  How  many  are  there  in  the  big  cities  ;  some 
of  state-wide  importance,  some  of  national  or  even  international  in- 
fluence? 

The  Steel  Corporation,  for  example,  is  a  morsel  to  roll  under  any 
man's  tongue.     Here  is  the  way  it  impresses  one  militant  journalist : 

The  Steel  Trust's  advantage  over  competitors  of  three  dollars  a  ton  in 
cost  of  production,  due  not  to  superior  efficiency  but  to  the  ownership  of 
certain  strategic  railroads  and  steamship  lines,  is  greatly  enhanced  by  its 
relations  to  many  other  carriers.  The  few  men  who  control  the  Steel  Cor- 
poration are  directors  also  in  twenty-nine  other  railroad  systems,  with 
126,000  miles  of  line  —  more  than  half  the  railroad  mileage  of  the  United 
States  —  and  in  steamship  companies.  These  men  are  also  directors  in 
twelve  steel-using  street  railroad  systems,  including  some  of  the  largest  in 
the  world ;  they  are  directors  in  forty  machinery  and  similar  steel-using 
companies ;  in  many  gas,  oil,  and  water  companies,  e.xtensive  users  of  iron 
products ;  and  in  the  great  wire-using  telephone  and  telegraph  companies. 
The  aggregate  assets  of  these  different  corporations  exceed  sixteen  billion 
dollars.  Sixteen  billion  dollars  is  more  than  twice  the  assessed  value  of  all 
the  property  of  New  England.  It  is  more  than  one  and  one-half  times  the 
assessed  value  of  all  the  property  in  the  thirteen  Southern  States.  It  is 
larger  than  the  assessed  value  of  all  the  property  in  the  twenty-two  States, 
North  and  South,  lying  west  of  the  Mississippi  River,  except  only  Te.xas.^ 

Interesting,  even  startling,  but  in  a  measure  misleading,  if  these 
great  properties  are  considered  as  being  under  a  common  control. 
The  common  control  extends  to  a  considerable  part  of  them  ;  with  the 
others  this  relation  means  little  more  than  ease  of  intercommunication 

^Collier's  Weekly.  Oct.  s,  1912.  Compare  the  testimony  taken  by  the  Pujo  investi- 
gating committee  of  the  House  of  Representatives,  especially  that  taken  on  Dec.  18,  igi2. 


198  CORPORATIONS 

or  ability  to  respond  quickly  to  a  common  impulse,  for  a  common 
benefit  or  defense.  On  the  other  hand,  the  Steel  Corporation  is  not 
the  only  sun  with  satellites  in  the  American  sky.  There  are  several 
others. 

However,  the  new-found  phrase  has  proved  in  a  measure  tyrannical. 
As  is  so  often  the  case  with  such  phrases,  being  a  catch-word  it  has 
bred  impulsive  judgment  —  it  has  turned  attention  to  one  side  of  a 
big  problem  and  has  effectively  excluded  most  others.  First,  it  has 
begged  the  question  —  it  has  created  an  assumption  that  interlocking 
directorates  are  in  and  of  themselves  undesirable.  But  this  might 
be  indulged,  if  it  had  not  so  totally  obscured  the  big  questions  that 
lie  just  behind.  Directors,  after  all,  are  merely  the  agents,  or  trustees 
of  corporations.  A  corporation's  owners  are  the  principals.  Its  big 
stockholders  —  and  yes,  begging  leave,  its  Uttle  ones  —  are  the  men 
behind  the  guns.  If  interlocking  agents  are  anathema  why  not  inter- 
locking principals?  Yet  the  question  of  common  ownership  is  as 
effectively  obscured  as  though  it  were  almost  non-existent. 

The  problem  is  more  than  this.  Indeed  it  is  not  one  but  several 
problems.  The  question  of  intercorporate  directorates,  it  must  be 
granted,  is  a  question  of  importance.  But  it  is  indissolubly  con- 
nected with  several  others.  The  questions  of  intercorporate  contracts, 
of  intercorporate  combinations,  consolidations,  leases  and  sales,  invite 
thought  in  which  the  intercorporate  directorate  may  be  but  incidental, 
a  background  shadow.  And  brooding  over  all  is  always  the  question 
of  the  interlocking  Ownership  of  these  corporations,  the  interfinancial 
hegemony,  which  can  no  longer  be  obscured.  Moreover  each  and 
all  of  these  problems  has  two  sides.  Public  and  private  interest  differ 
and  are  not  the  same.  Intercorporate  directorates,  intercorporate 
ownership,  contracts  between  corporations  ha\dng  common  directors  or 
ownership,  may  signify  one  thing  from  the  standpoint  of  a  minority 
stockholder,  another  from  that  of  the  majority  stockholder,  and  still 
another  from  that  of  the  public.  And  all  of  these  questions  may  in 
turn  be  qualified  or  entirely  metamorphosed  by  the  nature  of  the  busi- 
ness in  which,  as  it  happens,  the  particular  set  of  interlocked  corpora- 
tions under  examination  is  engaged.  If  the  corporations  are  smaller 
middle-sized  merchandising  corporations,  the  consuming  public  may 
be  specially  exercised  at  their  real  or  imagined  practices.  If  they  are 
industrial  corporations,  labor  will  be  particularly  alert  to  all  their 
doings.  If  they  are  public  service  corporations,  they  will  always 
entertain  a  medley  of  interested  inquisitors  —  a  little  bit  of  this,  that 
and  the  other  thing.  If  they  are  corporations  of  the  secret  process 
brand,  or  if  they  are  close  corporations,  or  if  they  are  in  any  sort  of 
business  in  which  reticence  is  something  more  than  good  manners,  they 
may  experience  one  sort  of  thing  —  which  may  sometimes  prove  very 
painful  —  whereas  if  they  are  corporations  of  the  banal,   open-to- 


CORPORATIONS  199 

everybody  kind,  or  the  kind  that  has  an  assured  monopoly,  a  perpetual 
franchise,  and  stock  and  bonds  all  listed  on  the  stock  exchange,  the 
experience  may,  as  a  rule,  be  quite  different.  A  little  more  dis- 
crimination than  we  have  had  thus  far  in  the  interlocking  directorate 
controversy  —  which  doesn't  quite  cover  everything  in  the  trust  and 
corporation  question  —  may  prove  helpful. 

Most  of  all,  differentiation  would  be  welcome  in  dealing  with  the 
concern  of  the  stockholder  on  one  hand,  that  of  the  public  on  the  other. 
Obvious  as  the  need  of  this  may  seem  to  be,  it  has  been  somewhat 
lacking. 

The  stockholder's  interest  in  the  corporation  is  that  of  a  property 
holder,  his  relation  to  the  director  is  that  of  one  of  several  joint  owners 
of  property  to  their  representatives  and  managers  —  representatives 
and  managers  who  have  very  full  powers  indeed,  who  can  help  the 
stockholder  or  hurt  him  beyond  repair.  The  stockholder's  prime 
concern  is  that  the  director  shall  work  always  and  all  the  time  for 
the  corporation,  for  that  means  he  will  work  for  the  stockholder.  The 
director  may  be,  and  if  he  is  a  big  man  in  the  business  world,  he  is 
likely  to  be,  a  director  in  other  corporations,  perhaps  in  several  of 
them.  That  of  itself  may  mean  nothing  of  importance  to  the  stock- 
holder. The  corporations  in  which  the  director  is  interested  as 
director  may  never  come  into  commercial  contact  with  his  own,  or 
their  contact  may  be  in  its  effect  neutral  or  even  beneficial.  But  once 
the  director  is  interested  as  director  in  a  competing  corporation,  or  in  a 
corporation  which  performs  a  service  or  produces  a  commodity  or 
possesses  property  which  the  other  corporation  desires  to  buy,  then 
the  situation  changes  immediately.  The  director  is  at  once  in  the 
position  of  one  who  seeks  to  serve  two  masters  whose  interests  are  or 
may  easily  become  more  or  less  conflicting  and  antagonistic.  Can  he 
maintain  a  perfectly  even  balance  ?  Will  he  dot  every  /,  cross  every  /, 
do  equity  like  a  Solomon  ?  When  contracts  are  made  between  the  two 
corporations  is  there  not  danger  that  he  will  give  one  of  them  the 
better  of  it?  The  danger  is  a  very  real  one,  and  the  opportunity 
presented  has  tempted  many  men  in  just  such  situations  to  do  gross 
fraud. 

Perhaps  it  will  be  said  that  the  stockholder  has  himself  to  blame  if 
he  permits  conditions  which  make  such  discrimination  or  dishonest 
dealing  easy.  That  would  be  true  if  the  stockholder's  position  were 
that  of  the  ordinary  employer  or  owner.  But  this  is  not  the  case. 
While  in  certain  respects  his  rights  and  powers  are  like  those  of  such 
an  employer  or  owner,  in  others  they  are  entirely  unlike  them.  Unless 
he  owns  a  working  majority  of  the  stock  himself  he  cannot  say  who 
shall  be  the  directors ;  he  cannot  say  that  a  part  or  even  all  of  the  di- 
rectors chosen  shall  not  hold  like  positions  in  one  or  a  dozen  other 
corporations,  any  or  all  of  which  may  be  competitors  of  his  own 


200  CORPORATIONS 

corporation ;  there  is  as  yet  practically  no  positive  law  against  inter- 
corporate directorates,  intercorporate  principals  or  intercorporate 
contracts  between  such  directorates  or  principals.  What  means  the 
stockholder  has  to  protect  himself  are  curative  rather  than  preventive. 

And  there  are  impediments  —  sometimes  exceedingly  difficult  to 
overcome  —  even  in  the  way  of  administering  the  cures.  Nowhere 
perhaps  is  this  better  illustrated  than  in  the  existing  state  of  the  law 
concerning  the  stockholder's  right  to  inspect  the  books  and  papers  of 
the  corporation.  It  is  laid  down  as  a  broad  general  proposition  that 
one  of  the  privileges  incident  to  stock  ownership  is  that  of  inspection 
of  the  books  and  papers  of  the  corporation,  and  that  this  privilege  in 
general  becomes  a  right  "when  the  inspection  is  sought  at  proper 
times  and  for  proper  purposes."  In  many  of  the  states  this  right  has 
been  expressly  guaranteed  by  statute,  in  some  by  the  constitution  — 
but  the  right,  such  as  it  is,  exists  at  common  law,  independent  of  legis- 
lative act  or  constitutional  guarantee.  Such  as  it  is.  For  as  a  general 
thing  it  is  a  right  which  can  be  availed  of  only  with  difficulty  e\'en  when 
the  exercise  of  it  seems  almost  imperative.  In  ordinary  relations  it 
often  seems  practically  impossible  to  assert  it  effectively.  Some 
courts  have  been  more  liberal  than  others  in  permitting  examination 
of  the  corporation's  books  and  papers  by  the  stockholder.  In  certain 
cases  the  privilege  has  been  granted  when  the  only  purpose  of  the  stock- 
holder appeared  to  be  to  acquire  information  to  enable  him  to  vote 
intelligently.  But  no  one  who  looks  into  the  matter  can  fail  to  be  im- 
pressed with  the  character  or  apparent  number  of  the  instances  in 
which  the  privilege  has  been  refused.  The  corporation  may  cease  to 
pay  dividends ;  the  market  value  of  its  shares  may  greatly  decrease ; 
the  officers  may  discontinue  their  reports  to  the  stockholders ;  the 
directors  may  decide  to  lease  or  dispose  of  a  part  of  the  property; 
they  may  decide  to  bring  suit  against  one  or  more  of  the  stockholders. 
In  such  cases  the  stockholder's  anxiety  will  be  very  real  and  the  only 
ways  in  which  it  can  be  allayed  will  be  through  the  assurances  of  officers 
and  directors  whom  he  trusts  or  by  an  examination  of  the  condition  of 
the  corporation  itself.  Yet  in  cases  of  precisely  this  character  stock- 
holders seeking  information  have  gone  away  empty  handed,  and 
the  courts  have  refused  relief. 

Overmuch  stress  of  course  is  not  to  be  placed  upon  this  condition 
of  affairs.  A  fair  balance  must  always  be  maintained.  A  corporation 
is  a  business  enterprise  and  like  most  business  enterprises  it  has  a 
business  privacy  which  cannot  be  invaded  and  business  secrets  which 
cannot  be  diviilged  without  injury  to  the  stockholders  themselves. 
The  director  as  a  trustee  of  the  corporation  —  and  he  is  a  trustee  of  the 
corporation  first,  of  the  stockholder  only  secondarily  —  is  often  under 
obligation  to  preserve  these  secrets  even  against  the  stockholder  him- 
self.    These  secrets  may  be  secrets  of  process  in  manufacture ;  special- 


CORPORATIONS  201 

ized  and  therefore  more  or  less  secret  knowledge  of  markets,  of  when 
to  buy  or  to  sell  to  the  best  advantage ;  but  they  may  also  to  some 
extent  —  to  a  reasonable  extent  —  be  secrets  of  business  conditions. 
It  may  for  a  time  be  as  important  to  a  corporation  to  keep  its  competi- 
tor in  the  dark  concerning  its  profit  and  loss  account  or  its  borrowing 
power  as  it  is  to  keep  from  that  competitor  all  knowledge  of  the  in- 
gredients entering  into  the  thing  it  sells.  But  admitting  all  this, 
the  privilege  of  non-communication  can  easily  transcend  the  bounds  of 
fairness  to  the  stockholders.  It  can  easily  be  made  to  cloak  a  scheme 
to  deceive  the  stockholder  as  to  his  holdings,  to  help  directors  working 
for  their  own  private  pockets  or  for  their  underground  financial 
prestige.     It  is  a  sinister  privilege  at  the  best. 

When  with  a  stoutly  claimed  privilege  of  silence,  of  non-communi- 
cation, there  coexists  a  situation  facilitating  and  inviting  intercor- 
porate relations  or  contracts  or  alliances  which  may  easily  prove  to  be 
to  the  detriment  of  stockholders  in  one  or  more  of  the  corporations 
concerned,  who  can  doubt  that  the  privilege  should  be  subject  to  the 
closest  scrutiny,  that  the  presumptions  of  the  law  should  favor 
the  stockholder  and  lodge  the  burden  of  showing  fairness  upon  the 
shoulders  of  the  directors?  Who  can  doubt  that  all  contracts  made 
between  such  corporations  where  the  common  directors  of  all  consti- 
tute an  acting  majority  or  a  powerful  influence  in  each  should  be 
strictly  voidable  and  that  it  should  be  possible  for  a  very  minor 
stockholding  interest  to  set  in  motion  the  machinery  which  would 
determine  whether  the  contract  was  fair  or  prejudicial  ? 

What  the  law  has  accomplished  in  this  respect  and  what  it  may 
yet  incline  to  accomplish  deserve  consideration  and  careful  study. 
It  will  be  found  that  the  courts  have  made  much  more  than  a  beginning, 
that  they  have  recognized  and  often  protected  the  infirmities  of  the 
stockholders  even  if  they  have  not  often  taken  those  final  steps  which 
would  make  the  stockholder  quite  independent  in  his  dealing  with  the 
corporation.^ 

A  very  few  courts  have  held  that  contracts  between  corporations 
which  have  common  directors  —  under  certain  conditions  at  least  — 
are  void.  Usually,  however,  in  such  cases  the  true  reason  why  they 
have  been  held  void  is  that  the  transaction  was  fraudulent.  A 
considerable  number  of  courts  are  to  be  found  at  the  other  extreme. 
They  hold  that  the  contracts  are  valid,  but  usually  they  say  that  they 
are  subject  to  strict  scrutiny  and  must  be  fair.  But  the  rule  upheld 
by  most  courts  is  that  they  are  voidable.  Some  say  that  such  con- 
tracts may  be  avoided  "without  regard  to  the  question  of  advantage 
or  detriment,"  but  the  great  majority  permit  avoidance  only  when  in 

'  fiome  of  the  most  important  phases  of  this  matter  are  discussed  by  the  writer  in  an 
article  entitled  "The  Validity  of  Contracts  between  Corporations  Having  Common  Direc- 
tors," pubUshed  in  the  Michigan  Law  Rcvirii,  June,  1906. 


202  CORPORATIONS 

addition  to  the  common  directorship  some  element  of  adverse  interest, 
agency,  or  fraud  is  present. 

The  rule  that  declares  all  such  contracts  void  seems  oppressive. 
The  rule  that  declares  them  vaUd,  on  the  other  hand,  is  much  too 
liberal.  It  makes  common  directors  feel  that  they  have  free  rein, 
that  the  presumptions  are  in  their  favor.  The  true  policy  seems  to 
lie  between  —  where  most  of  the  courts  have  located  themselves. 
The  contracts  should  be  regarded  as  voidable  whenever  any  advantage 
has  been  taken  of  the  stockholders  on  either  side.  The  utmost  good 
faith  should  be  required  of  those  who  make  such  contracts.  And  there- 
fore to  protect  fully  the  interests  of  the  minority  and  the  individual 
stockholder  does  it  not  seem  that  the  individual  stockholder  —  pro- 
vided he  is  not  shown  to  be  a  gratuitous  trouble-maker  —  should  have 
power  to  begin  proceedings  in  the  courts  which  would  lead  to  avoidance 
of  the  contract  if  any  advantage  had  been  taken  of  him  or  other  stock- 
holders ?  Then  the  mere  showing  that  the  two  corporations  between 
which  the  contract  is  made  have  common  directors  should  constrain 
the  court  to  look  into  the  matter.  The  courts  have  not  yet  given  the 
individual  stockholder  or  the  small  group  of  stockholders  adequate 
powers  of  interference  in  such  cases.  And  they  have  not  yet  allowed 
them  that  freedom  in  the  examination  of  the  books  and  papers  of 
the  corporation  without  which  this  right  would  often  be  empty 
and  meaningless.  It  is  in  these  two  directions  that  improvement  can 
be  made  —  but  improvement  can  be  made  in  them  without  great  diffi- 
culty, for  the  advance  lies  along  a  beaten  track.  There  are  no  trails 
to  blaze. 

It  follows  as  a  natural  conclusion  that  so  far  as  the  private  interest 
—  the  interest  of  the  stockholder  —  is  concerned,  legislation  at  this 
time  prohibiting  interlocking  directorates  —  except  in  exceptional 
cases  —  or  interlocking  principals,  would  be  premature.  It  is  doubt- 
ful whether,  from  the  private  point  of  view  alone,  such  legislation  will 
ever  be  necessary,  providing  the  courts  take  good  case  of  the  inter- 
corporate contracts,  extending  their  good  offices  in  the  further 
strengthening  of  the  stockholder's  position. 

The  dividing  line  between  the  public  and  private  or  stockholder's 
interest  and  point  of  view  in  this  group  of  problems  is  sharp.  The 
public  question  is  economic,  to  some  extent  political  and  social; 
the  stockholder's  problem  is  almost  entirely  one  of  profit  and  loss. 
In  a  word,  the  public  problem  is  the  anti-trust  problem,  the  problem  of 
competition  and  combination.  It  is  not  intended  to  discuss  the  trust 
question.  It  may  be  said  at  once  that  what  is  said  here  rests  upon  a 
belief  in  the  economic  expediency  and  the  social  advantage  of  a  general 
competitive  regime  in  which  limited  competitive  combination  or 
co-operation,  in  other  words  a  reasonable  as  distinguished  from  a  monop- 
olistic modus  operandi,  is  allowed  to  play  a  significant  but  an  inci- 


CORPORATIONS  203 

dental  and  therefore  subordinate  role.  The  kind  of  combination  or 
cooperation  that  is  not  allowed  to  block  the  movement  and  free  de- 
velopment of  equal  economic  opportunity,  is  but  the  logical  evolution 
and  expression  of  one  form  of  highly  developed  competitive  eflficiency. 
What  bearing  then  have  intercorporate  directorates,  intercorporate 
ownership,  and  contracts  between  corporations  having  common 
directors  or  owners,  upon  the  question  of  competition  and  combination  ? 

It  is  at  once  obvious  that  if  two  or  more  corporations  have  boards 
of  directors  so  constituted  that  an  acting  majority  or  even  a  highly 
influential  minority  of  those  on  one  board  are  members  of  the  other 
board  or  boards  these  two  or  more  corporations  may  with  great  facility 
be  made  to  work  together  —  almost  as  though  they  were  one.  This 
assumes  of  course  that  they  are  corporations  which  in  their  nature 
can  work  together.  The  presence  on  a  local  New  England  real  estate 
corporation's  board  of  a  majority  of  the  directors  who  constitute  the 
board,  let  us  say,  of  a  corporation  engaged  in  lighterage  in  New  York 
harbor  would  be  utterly  without  significance.  These  two  corporations 
would  never  play  into  each  other's  hands,  nor  could  they  well  take  ad- 
vantage of  each  other.  But  where  the  corporations  are  of  such  a  kind 
that  between  them  there  could  be  combination,  horizontal  or  vertical, 
the  presence  of  common  directors  becomes  of  the  utmost  significance. 
A  railroad  needs  freight,  the  freight  producer  needs  the  railroad — 
with  interlocking  directorates  they  are  often  as  good  as  combined. 
A  steel  producing  company  needs  ore,  an  ore  producing  company 
wants  a  good  market  for  its  product  —  give  them  common  directors 
and  often  they  are  more  than  united,  they  are  almost  coalesced.  The 
United  States  Steel  Corporation,  the  International  Harvester  Com- 
pany, the  American  Sugar  Refining  Company  are  all  illustrations  of 
vertical  combination ;  and  as  for  illustrations  of  horizontal  combina- 
tion, they  are  also  found  in  these  companies  as  they  are  in  a  legion  of 
others. 

In  some  cases  such  combination  by  the  interlocking  of  directorates 
will  offend  public  policy.  In  other  cases  it  may  be  said  to  be  directly 
in  line  with  it  —  as  when  non-competing  railroads  are  thus  combined. 
The  public  policy  of  nearly  all  our  states  in  the  past  has  favored  the 
consolidation  of  non-competing  railroads,  and  common  directorates 
is  a  promising  step  toward  such  consolidation. 

But  if  combinations  in  unreasonable  restraint  of  trade  are  to  be 
condemned,  then  wherever  two  or  more  corporations  are  engaged  in 
practices  that  are  destructive  of  competition,  and  it  can  be  shown 
further  that  they  have  interlocking  directorates,  the  presumption 
becomes  exceedingly  strong  that  they  have  in  effect  combined  to 
restrain  trade.  The  interlocking  directorate  in  such  cases  is  the  visible 
symbol  of  an  inward  and  secret  transgression  of  the  law.  Should 
not  the  fact  of  common  directorates  be  laid  hold  of  by  the  law  in  such 


204  CORPORATIONS 

circumstances  and  be  used  to  fasten  the  presumption  of  illegal  practices 
upon  the  corporations  concerned  ?  Some  would  go  further,  prohibiting 
absolutely  all  interlocking  directorates  in  the  case  of  competing  cor- 
porations.    But  the  rebuttable  presumption  may  prove  adequate. 

When,  in  addition  to  the  common  directorates,  there  are  contracts 
in  common,  or  contracts  between  the  interlocked  corporations,  the 
government's  case  may  usually  be  considered  made.  Between  such 
corporations  there  must  usually  be  such  contracts,  written  or  word-of- 
mouth,  or  if  not  contracts  then  "gentlemen's"  or  other  equally 
intelligible  agreements  —  so  that  once  the  fact  of  interlocking 
directorates  is  established  a  subpcena  duces  tecum  or  a  rigid  cross 
examination  of  the  gentlemen  agreeing  is  likely  to  mean  death  in 
the  pot. 

However,  this  is  not  all  of  the  matter.  We  may  pin  down  the  in- 
tercorporate contract,  we  may  ventilate  the  interlocking  director,  and 
find  ourselves  still  outside  the  gates.  By  example  we  should  tread 
softly  here.  We  now  approach  a  subject  around  which  some  law 
officers  and  many  other  persons  have  been  tiptoeing,  much  as  though 
they  were  attendants  in  a  sick  room  or  a  sanctuary. 

There  are  of  course  corporations  normally  competitive  which  have 
interlocking  directorates  without  interlocking  ownership.  On  the 
other  hand  there  is  interlocking  ownership  without  interlocking 
directorates.  A  and  B  may  own  a  majority  of  the  stock  in  corporation 
No.  I  and  a  majority  of  the  stock  in  corporation  No.  2,  and  an  influen- 
tial part  of  the  board  of  directors  of  the  first  corporation  may  or  may 
not  constitute  a  part  of  the  board  of  directors  of  the  second  corporation. 
It  does  not  make  very  much  difference.  In  any  case,  the  problem  is 
about  the  same.  When  the  corporations  have  a  sufficient  number  of 
common  directors  they  will  tend  to  be  managed  in  a  common  interest. 
When  they  lack  the  common  directors  but  have  common  owners 
every  director  will  tend  to  be  either  dummy  or  Good  Man  Friday. 
He  will  know  his  master's  voice  and  when  to  heed  it. 

Interlocking  ownership  so  far  has  seemed  to  bear  a  charmed  life. 
Now  there  may  be  good  reasons  for  this.  There  must  be  some  reason 
for  it.  There  must  be  some  reason  why  bills  are  framed  against  the 
agents,  the  common  directors  —  while  the  common  owners,  the  prin- 
cipals, are  entirely  passed  by.  Perhaps  it  is  because  of  that  commend- 
able spirit  of  thorough  experimentation  which  bids  the  wise  to  make 
haste  slowly ;  to  go  ahead,  but  first  to  have  some  idea  of  the  directions. 
Perhaps  it  is  due  to  a  conviction,  conscious  or  subconscious,  that 
common  ownership  is  not  necessarily  an  evil  thing,  that  the  evil  lies 
only  in  practices  that  are  in  unreasonable  restraint  of  trade,  and  that 
it  is  possible  to  have  common  ownership  and  legal  practice.  In  some 
cases  no  doubt  this  is  true.  But  in  others  it  seems  to  require  a  faith  in 
human  nature  little  short  of  the  sublime,  and  therefore  of  course 


CORPORATIONS  205 

sometimes  not  far  removed  from  the  ridiculous.  Unless,  which  seems 
entirely  possible,  a  combination  reconstituted  as  a  combination  of 
common  owners  may  be  said  to  have  suffered  a  sea-change  "  into 
something  rich  and  strange  "  and  in  its  new  condition  be  given  a 
charter  of  indulgences  permitting  it  to  do  what  before  was  in  violation 
of  the  law.  Or  it  may  be  that  interlocking  ownership  has  enjoyed 
this  immunity  from  attack  because  of  much  doubt  as  to  just  how  far 
the  government  can  go,  constitutionally  and  practically,  in  compelling 
the  owners  of  illegally  combining  properties  to  liquidate  their  proper- 
ties in  part  to  others.  The  practical  difficulty  of  a  thorough-going 
measure  of  this  kind  would  assuredly  be  extreme,  while  its  constitu- 
tional implications  might  prove  most  embarrassing. 

As  a  matter  of  fact  all  of  these  things  and  more  must  be  taken  into 
consideration  in  any  attempt  to  do  justice  to  the  existing  state  of  mind 
—  to  its  blind  side  as  well  as  to  the  side  on  which  an  optic  nerve  is 
beginning  to  develop.  It  was  only  yesterday,  so  to  speak,  that  the 
significance  of  common  ownership  was  thrown  into  sharp  relief,  when 
the  Standard  Oil  agglomeration  emerged  from  its  ordeal  of  disinte- 
gration seemingly  more  closely  integrated,  more  thoroughly  concen- 
trated, more  narrowly  held  than  ever  before,  so  far  at  least  as  common 
ownership  is  concerned.  The  Standard  Oil  system  stands  dissolved 
and  the  little  shareholders  in  it  own  perhaps  less  than  they  did  before, 
the  big  shareholders  more.  Genius  itself  could  not  have  contrived  a 
scheme  better  adapted  to  the  automatic  and  perfectly  noiseless  elimina- 
tion of  the  little  fellows. 

It  is  perhaps  not  to  be  wondered  at  that  the  political  physician  still 
remains  transfixed,  that  the  lips  of  the  prophets  are  dumb  —  though 
of  course  there  is  no  big  surprise  without  its  sequel.  It  may  be 
that  we  have  some  preliminaries  of  the  sequel  already,  in  the  Union 
Pacific-Southern  Pacific  decree.  How  far-reaching  the  principles  enun- 
ciated in  that  decision  may  prove  to  be  remains  to  be  seen. 

Moreover  the  anti-trust  evolution  is  just  now  at  a  point  —  and, 
must  it  not  be  said,  a  healthy  one?  —  where  most  attention  is  directed 
to  practices,  to  acts,  to  deeds ;  to  the  nature  and  the  incidence  of  those 
things  which  tend  to  throttle  healthful  competition,  and  make  desert 
the  conditions  under  which  opportunity  for  men  of  little  means  and 
power  flourishes.  We  have  reached  the  point  where  we  may  hope  to 
see  Congress  and  the  government  come  to  grips  with  realities.  Some- 
thing already  has  been  done.  We  are  on  the  threshold  of  this  achieve- 
ment. One  or  two  pushes  —  how  great  the  misfortune  of  the  pulls 
backward !  —  and  the  government  will  be  straight  over  the  bars, 
laying  about  it  right  and  left,  at  the  cut-throat  price  discriminations, 
at  the  stifling  of  competitors  by  refusing  to  sell  anything  to  those  who 
will  not  buy  everything,  at  monopoly  espionage,  at  fake  independ- 
ence, at  any  and  every  similar  device.     We  shall  have  regulation  of 


2o6  CORPORATIONS 

competition,  regulation  of  reasonable  cooperation,  of  combination  that 
is  not  destructive  of  opportunity,  more  liberty,  and  more  enterprise. 

It  is  not  surprising  that  with  a  prospect  of  being  thus  engrossed 
we  should  not  yet  have  begun  to  examine  very  critically  the  more  or 
less  abstract  questions  of  interlocking  directorates,  or  the  perhaps 
even  more  abstract  questions  of  interlocking  ownership. 

There  is  in  this  an  excellent  chance  of  escape  for  director  or  owner 
who  in  the  past  has  directed  or  owned  to  the  end  that  trade  might 
be  unreasonably  restrained.  If  he  is  intelligent  enough  to  take  warn- 
ing from  the  growing  demands  for  the  suppression  of  practices  inimical 
to  a  regime  of  economic  freedom  and  justice  —  and  as  director  or 
owner  of  one  corporation  can  achieve  the  feat  of  truly  competing 
with  himself  as  director  or  owner  of  the  other  —  he  may  be  allowed 
to  lead  his  dual  and  difficult  life  in  all  the  peace  that  is  economically 
possible.  But  if  he  does  not  do  this  —  if  he  lacks  the  requisite  intelli- 
gence to  do  it  —  he  may  well  beware  the  bale  that  is  in  store  for  him. 
For  suppose  that  in  the  effort  to  put  an  end  to  practices  that  stifle 
competition  and  throttle  opportunity,  the  struggle  should  seem  vain  — 
and  largely  perhaps  because  of  interlocking  contracts,  the  interlocking 
directorate  or  the  common  OAvners.  Suppose  that  the  men  earnestly 
working  for  the  improved  conditions  become  convinced  of  that.  Does 
any  one  doubt  what  they  will  do  ?  Will  they  hesitate  to  suppress  such 
contracts?  The  courts  have  already  shown  the  way  to  do  that  and 
in  many  instances  they  have  done  it.  Will  they  stop  at  the  interlock- 
ing directorates  ?  The  legislatures,  state  and  national,  have  already 
entertained  some  measures  of  this  kind,  and  at  least  one  of  them 
enacted  into  law  has  been  most  successful.  Will  they  stop  even  at 
common  ownership?  Perhaps  there  they  may  pause  and  look  about 
them  questioningly,  but  that  they  will  stop  there  if  the  common  wel- 
fare urges  them  onward,  who  will  prophesy? 

We  know  that  there  is  a  very  general  feeling  among  laymen  and  a 
certain  conviction  among  lawyers  that  under  our  system  of  juris- 
prudence there  is  no  way  of  preventing  a  man  from  owning  almost  any- 
thing he  pleases  and  as  much  of  it  as  he  pleases,  provided  he  has  the 
means  of  acquiring  it.  But  once  the  demand  arises  and  becomes 
distinct,  a  demand  of  the  deliberate  majority,  we  may  be  surprised 
at  the  comparative  ease  with  which  the  change  is  brought  about  — 
and  brought  about  according  to  the  forms  of  existing  law.  To-day 
many  might  ridicule  any  suggestion  that  through  the  power  of  taxa- 
tion, the  power  of  eminent  domain,  the  "police  power,"  the  power  to 
grant  and  so  to  limit  corporate  franchises,  or  the  power  to  control 
interstate  or  intrastate  commerce,  really  practical  and  effective  limi- 
tations could  be  put  upon  the  amount  of  stocks  of  a  given  kind  that  any 
man  could  own.  But  each  of  these  branches  of  the  law  —  taxation 
perhaps  the  least,  the  power  to  restrict  corporate  franchises  and  the 


CORPORATIONS  207 

power  to  control  commerce  perhaps  the  most  —  contains  the  seed 
from  which  in  the  fertile  soil  of  judicial  construction  or  extension  some 
hardy  plants  may  grow. 

Perhaps  the  least  difficult  device  for  control  of  interlocking  owner- 
ship —  but  one  not  without  many  difficulties  under  our  dual  govern- 
ment —  would  be  to  grant  corporate  franchises  only  to  those  who  own 
no  stock  or  only  a  limited  amount  of  stock  in  competing  corporations, 
making  this  restriction  a  condition  on  breach  of  which  the  corpora- 
tion's franchise  would  be  forfeited.  No  one  who  realizes  the  tremen- 
dous extent  of  power  which  Congress  has  over  interstate  commerce 
—  how  it  reaches  into  details,  into  incidents  but  remotely  related  —  no 
one  who  has  observed  the  almost  furious  pace  at  which  this  power  has 
developed  and  is  still  developing,  could  be  very  greatly  surprised  if 
out  of  it  there  should  be  evolved  far-reaching  limitations  upon  the 
amount  and  character  of  stockholdings  in  all  corporations  engaged 
in  interstate  commerce,  corporations  which  now  include  the  big  manu- 
facturing or  industrial  corporations  with  the  others.^ 

The  time  may  not  yet  have  come  for  broad,  general  laws  forbidding 
intercorporate  directorates.  For  the  next  few  years  we  seem  destined 
to  give  most  attention  to  deeds,  to  the  acts  that  are  hostile  to  our 
economic  and  social  welfare.  It  is  well  that  the  emphasis  is  placed 
there.  The  energy  that  seems  now  behind  it  might  be  dissipated, 
even  destroyed,  if  it  were  sunk  in  the  abstractions  of  mere  organiza- 
tion. But  we  shall  be  fatuous  beyond  belief  if  in  hammering  at  deeds 
we  lose  sight  of  these  abstractions,  for  they  embrace  the  real.  There 
are  even  now  certain  corporation  aggregations  which  menace  the 
movement  against  destructive  trade  practices  and  agreements, 
chiefly  because  of  the  fact  that  they  are  dominated  by  common  directors 
or  common  owners.  If  in  any  cases  the  situation  is  worse  than  this, 
if  there  is  beyond  a  preponderance  of  doubt  a  class  of  corporations  in 
which  interlocking  management  means  an  inevitable  breach  of  that 
public  policy  which  has  declared  for  reasonable  competition  and  fair 
opportunity,  there  can  hardly  be  a  choice.  Interlocking  management 
for  that  specific  class  of  corporations  will  have  to  give  way  or  the  public 
policy  itself  will  have  to  give  way. 

Large-scale  production  may  be  desirable,  in  some  branches  of  trade 
it  is  undoubtedly  essential  to  prosperity.  We  should  do  everything 
possible  to  mediate  between  those  economic  forces  which  make  toward 
the  most  efficient  units  of  production  and  the  struggle  of  individuals 
for  freedom  of  opportunity,  which  is  even  more  important.  Mediation 
of  course  is  far  removed  from  dogmatic  politics.     It  puts  the  emphasis 

1  It  may  be  that  the  existing  Anti-Trust  legislation,  with  some  not  fundamental  changes, 
will  prove  adequate  to  accomplish  such  an  end,  should  there  prove  to  he  a  public  need  for 
it.  Since  this  paper  was  written  Attorney-Ceneral  Wickcrsham's  proposition  for  the  regu- 
lation of  the  Union  Pacific  and  Southern  Pacific  stockholdings  —  a  direct  blow  to  inter- 
locking ownership  —  has  been  made. 


2o8  CORPORATIONS 

on  the  facts ;  condemns  the  contract  between  interlocking  corporations 
only  when  it  is  contrary  to  the  interests  of  the  private  stockholder  or 
offends  public  policy ;  condemns  interlocking  directorates  where  the 
facts  show  that  they  should  be  condemned,  and  therefore  in  the  ab- 
sence of  sufficient  information  waits  awhile  before  it  makes  up  its 
mind;  condemns  the  common  ownership  of  competing  corporations 
only  when  it  is  demonstrated  that  neither  the  surveillance  of  such  cor- 
porations, the  supervision  of  their  contracts,  nor  the  prescription  of 
their  organization  has  been  enough.  Mediation,  however,  is  not 
mere  meditation.  Its  time  is  now  and  its  method  is  one  of  ceaseless 
activity. 


THE  POWER  OF  CONGRESS  TO  ENACT  INCORPORATION 
LAWS  AND  TO  REGULATE  CORPORATIONS 

By  Victor  Mor.4wetz  of  the  New  York  Bar 

(From  the  Harvard  Law  Review,  June,  1913) 

This  article  might  properly  have  been  placed  in  a  subsequent  division  on 
"Tendencies  toward  Federal  Centralization,"  on  p.  498.  It  is  inserted 
here  because  the  problem  of  federal  control  has  become  the  latest  and  most 
vital  phase  of  the  corporation  question.  —  Editor's  Note. 

I.   The  Po\ver  of  Congress  to  Enact  Incorporation  Laws 

The  formation  of  corporations  is  not  a  primary  purpose  or  power 
of  the  national  government.  Corporations  are  not  mentioned  in  the 
Constitution.  But,  subject  to  the  limitations  expressly  imposed  by 
the  Constitution,  Congress  has  power  to  enact  laws  to  execute  any  of 
the  purposes  or  powers  entrusted  by  the  Constitution  to  the  national 
government;  and,  therefore.  Congress  can  pass  an  act  of  incorpora- 
tion, or  an  act  regulating  corporations,  if  such  an  act  is  merely  a 
means  of  executing  some  constitutional  purpose  or  power. 

In  1 791  the  first  Congress  passed  a  bill  incorporating  the  Bank  of 
the  United  States,  a  private  stock  corporation  with  power  to  establish 
branches  and  to  engage  in  a  general  banking  business.  President 
Washington  called  upon  Thomas  Jefferson,  the  Secretary  of  State, 
and  Edmund  Randolph,  the  Attorney-General,  for  opinions  as  to  the. 
constitutionality  of  the  bill.  Their  opinions  being  adverse,  the  Presi- 
dent called  upon  Alexander  Hamilton,  who  was  Secretary  of  the 
Treasury  and  had  been  the  principal  author  of  the  bill,  to  state  the 
reasons  which  induced  him  to  consider  the  bill  constitutional.  Hamil- 
ton submitted  a  persuasive  opinion  in  favor  of  the  constitutionality 


CORPORATIONS  209 

of  the  bill/  which  thereupon  was  signed  by  the  President.  The  charter 
of  the  bank  expired  in  181 1  and  for  pohtical  reasons  Congress  refused 
to  renew  it ;  but  in  181 6  Congress  passed  an  act  chartering  the  second 
Bank  of  the  United  States,  which  also  was  a  private  stock  corporation 
with  power  to  establish  branches  and  to  engage  in  a  general  banking 
business  throughout  the  United  States.  The  United  States  was  a 
shareholder  in  the  bank,  and  the  latter  was  constituted  a  depositary 
of  the  United  States  government.  In  the  case  of  M'Culloch  vs.  Mary- 
land ^  the  Supreme  Court  decided  that  the  act  incorporating  the  bank 
was  constitutional  because  the  creation  of  such  a  banking  corporation 
was  an  appropriate  instrument  for  conducting  the  fiscal  operations 
of  the  government.  The  court  held  that  the  creation  of  a  corporation 
was  not  a  substantive  and  independent  governmental  purpose,  but 
was  merely  a  means  employed  to  effect  some  ulterior  purpose ;  that, 
except  so  far  as  expressly  Umited  by  the  Constitution,  Congress  was 
impliedly  empowered  to  resort  to  any  appropriate  means  of  effecting 
any  of  the  constitutional  purposes  of  the  national  government ;  that 
it  was  not  a  subject  of  controversy  that  the  creation  of  a  banking  cor- 
poration was  a  convenient,  useful,  and  essential  means  for  carrying 
on  the  fiscal  operations  of  the  government,  and  that  there  was  no 
reason  why  Congress  should  not  resort  to  the  creation  of  a  corporation 
for  that  purpose.^ 

In  1863  and  1864  Congress  passed  general  acts  for  the  incorpora- 
tion of  national  banks.  In  Farmers'  and  Merchants'  National  Bank 
vs.  Bearing  ^  the  Supreme  Court  said : 

The  constitutionality  of  the  act  of  1864  is  not  questioned.  It  rests  on  the 
same  principle  as  the  act  creating  the  second  .bank  of  the  United  States. 
The  reasoning  of  Secretary  Hamilton  and  of  this  court  in  M'Culloch  vs. 
Maryland  (4  Wheat.  316)  and  in  Osborn  v.  Bank  of  the  United  States  (9  id. 
708)  therefore  applies.  The  national  banks  organized  under  the  act  are 
instruments  designed  to  be  used  to  aid  the  government  in  the  administra- 
tion of  an  important  branch  of  the  public  service.  They  are  means  appro- 
priate to  that  end.  Of  the  degree  of  the  necessity  which  existed  for  creating 
them  Congress  is  the  sole  judge. 

Although  undoubtedly  the  court  was  right  in  sustaining  the  con- 
stitutionality of  the  National  Bank  Act,  the  grounds  upon  which  the 
court  based  its  conclusion  seem  questionable.  The  act  incorporating 
the  Bank  of  the  United  States  was  sustained  because  it  was  created 
to  serve  as  an  instrument  of  the  government  in  carrying  on  its  fiscal 

'  Hamilton's  opinion  is  printed  in  the  edition  of  The  Federalist  edited  by  Paul  Leicester 
Ford,  published  by  Henr>'  Holt  &  Co.  in  1898. 

2  4  Wheat.  (U.S.)  316  (1819).  See  also  Osborn  vs.  Bank  of  United  States,  9  Wheat. 
(U.S.)  738,  8s9  (1824).  _^^  .  „     , 

'See  the  opinion  of  Chief  Justice  Marshall,  4  Wheat.  (U.S.)  411,  422,  423  (1819). 

<9i  U.S.  29  (1875). 


2IO  CORPORATIONS 

operations;  but  the  constitutionality  of  a  general  act  for  the  incor- 
poration of  an  unlimited  number  of  banks  to  engage  in  a  general  bank- 
ing business  for  the  profit  of  their  stockholders  cannot  fairly  be  based 
on  that  ground.^  Under  the  National  Bank  Act  more  than  seven 
thousand  banks  have  been  formed,  many  of  them  having  a  capital  of 
only  $25,000  and  supplying  only  local  needs  of  banking  facilities.  An 
assertion  that  all  these  banks  were  incorporated  to  serve  as  instru- 
ments of  the  government  in  the  administration  of  its  fiscal  operations 
would  seem  Uttle  more  than  a  pretense.  A  sounder  and  better  ground 
for  sustaining  the  constitutionality  of  the  National  Bank  Acts  appears 
to  be  the  power  conferred  by  the  Constitution  upon  Congress  "to 
regulate  commerce  with  foreign  nations,  and  among  the  several  states." 
Even  in  1791,  when  the  commerce  of  the  United  States  was  in  its  in- 
fancy, Alexander  Hamilton  assigned  the  commerce  clause  of  the  Con- 
stitution as  a  ground  for  sustaining  the  constitutionality  of  the  act 
incorporating  the  first  Bank  of  the  United  States.  In  modern  times 
a  sound  banking  system  and  adequate  banking  facilities  are  as  essen- 
tial to  interstate  and  international  commerce  as  are  railways  and 
steamship  Unes. 

In  the  case  of  California  vs.  Pacific  Railroad  Companies  -  the  Su- 
preme Court  sustained  the  constitutionality  of  the  acts  of  Congress 
incorporating  the  Pacific  Railroad  Companies.  Mr.  Justice  Bradley, 
delivering  the  opinion  of  the  court,  said : 

It  cannot  at  the  present  day  be  doubted  that  Congress,  under  the  power 
to  regulate  commerce  among  the  several  States,  as  well  as  to  provide  for 
postal  accommodations  and  military  exigencies,  had  authority  to  pass  these 
laws.  The  power  to  construct,  or  to  authorize  individuals  or  corporations 
to  construct,  national  highways  and  bridges  from  State  to  State,  is  essen- 
tial to  the  complete  control  and  regulation  of  interstate  commerce.  With- 
out authority  in  Congress  to  establish  and  maintain  such  highway's  and 
bridges,  it  would  be  without  authority  to  regulate  one  of  the  most  im- 
portant adjuncts  of  commerce.^ 

In  Luxton  vs.  North  River  Bridge  Co.'*  the  Supreme  Court  sustained 
the  constitutionality  of  the  act  of  Congress  incorporating  the  North 

1  In  Osborn  vs.  Bank  of  United  States,  9  Wheat.  (U.S.)  738,  860  (1824),  Chief  Justice 
Marshall  said:  "The  Bank  is  not  considered  as  a  private  corporation,  whose  principal 
object  is  individual  trade  and  individual  profit ;  but  as  a  public  corporation,  created  for 
public  and  national  purposes.  That  the  mere  business  of  banking  is,  in  its  own  nature,  a 
private  business,  and  may  be  carried  on  by  individuals  or  companies  having  no  political 
connection  with  the  government  is  admitted ;  but  the  Bank  is  not  such  an  individual  or 
company.  It  was  not  created  for  its  own  sake  or  for  private  purposes.  It  has  never  been 
supposed  that  Congress  could  create  such  a  corporation.  The  whole  opinion  of  the  court, 
in  the  case  of  M'CuIloch  vs.  The  State  of  Maryland,  is  founded  on,  and  sustained  by,  the 
idea  that  the  bank  is  an  instrument  which  is  'necessary  and  proper  for  carrying  into  effect 
the  powers  vested  in  the  government  of  the  United  States.'" 

2127  U.S.  I  (1887). 

'127  U.S.  39  (1887).  Congress  also  has  granted  a  charter  to  the  Nicaragua  Canal 
Company.  •'153  U.S.  525  (1894). 


CORPORATIONS  211 

River  Bridge  Company  for  the  construction  of  a  bridge  across  the 
Hudson  River  between  the  states  of  New  York  and  New  Jersey. 
The  court  held  that  "  although  Congress  may,  if  it  sees  fit  and  as  it  has 
often  done,  recognize  and  approve  bridges  erected  by  authority  of 
two  States  across  navigable  waters  between  them,  it  may,  at  its  dis- 
cretion, use  its  sovereign  powers,  directly  or  through  a  corporation 
created  for  that  object,  to  construct  bridges  for  the  accommodation  of 
interstate  commerce  by  land,  as  it  undoubtedly  may  to  improve  the 
navigation  of  rivers  for  the  convenience  of  interstate  commerce  by 
water."  ^ 

Congress  possesses  all  sovereign  powers  of  government  in  the  terri- 
tories of  the  United  States,  and  may  estabhsh  territorial  governments 
with  general  legislative  powers.  Therefore  Congress  has  power  to 
pass  special  or  general  laws  authorizing  the  formation  of  corporations 
for  any  purposes  within  the  territories,  and  this  power  may  be  dele- 
gated to  the  respective  territorial  legislatures.^  Congress  also  may 
charter  corporations  in  the  District  of  Columbia.^  However,  the 
franchises  of  a  territorial  corporation  do  not  extend  beyond  the  terri- 
tory in  which  it  was  incorporated,  and  the  franchises  of  a  corporation 
chartered  by  Congress  under  its  legislative  powers  over  the  District 
of  Columbia  do  not  extend  beyond  the  District.  Such  corporations 
may  carry  on  their  authorized  business  and  operations  in  the  several 
states  only  so  far  as  permitted  by  the  states. 

II.  National  Incorporation  of  Trading  Companies 

The  grant  by  the  Constitution  of  power  "to  regulate"  interstate 
and  international  commerce  has  been  construed  by  the  Supreme 
Court  as  constituting,  in  effect,  a  grant  of  power  to  legislate  generally 
in  respect  of  such  commerce.  It  has  been  held  that  Congress  not 
only  has  power  to  regulate  interstate  and  international  commercial 
transactions  and  to  prescribe  police  regulations  for  the  government 
of  interstate  and  international  commerce,'*  but  also  has  power  to  pass 
laws  prohibiting  restraints  of  such  commerce,^  and  laws  to  provide 
the  public  with  suitable  instrumentaUties  or  facilities  for  the  trans- 
action of  such  commerce,  such  as  railways,  bridges,  and  telegraph 
lines,*  as  well  as  laws  regulating  the  business  and  operations  of  public 

>  IS3  U.S.  525,  530  (1894). 

^Mormon  Church  vs.  United  States,  136  U.S.  i,  42  (i88q),  and  cases  cited;  Vincennes 
University  vs.  Indiana,  14  How.  (U.S.)  270  (1852);  Williams  vs.  Bank  of  Michigan,  7 
Wend.  (N.Y.)  539  (1831)  and  cases  cited. 

sHadlev  vs.  Freedman's  Savings  Bank,  2  Tenn.  Ch.  122,  126  (1874) ;  Williams  vs.  Crcs- 
well,  SI  Miss.  817,  82.-'  (1876). 

■•Lottery  Case,  or  Champion  vs.  Ames,  188  U.S.  321  (1902);  Reid  vs.  Colorado,  187 
U.S.  137  (1902);   In  re  Rahrer,  140  U.S.  545  (1890). 

^  For  example,  the  Anti-Trust  Act  of  1890. 

*  Cases  supra. 


212  CORPORATIONS 

carriers  and  of  others  engaged  in  a  business  of  a  public  character  and 
serving  the  public  as  instrumentalities  for  the  transaction  of  such 
commerce.^ 

Soon  after  the  adoption  of  the  Constitution,  when  the  interstate 
and  international  commerce  of  the  United  States  was  comparatively 
small,  Hamilton  pointed  out  that  "the  fact  that  all  the  principal 
commercial  nations  have  made  use  of  trading  corporations  is  a  satis- 
factory proof  that  the  establishment  of  them  is  an  incident  to  the 
regulation  of  commerce."  ^  In  modern  times  a  very  large  part  of 
interstate  and  international  trade  is  carried  on  by  means  of  corporate 
organizations  and  the  right  to  form  corporations  to  carry  on  such 
trade  has  become  a  practical  necessity.  An  act  of  Congress  authoriz- 
ing the  formation  of  such  corporations  could,  therefore,  justly  be 
sustained  on  the  ground  that  the  right  to  form  corporations  is  neces- 
sary to  the  convenient  and  effective  transaction  of  interstate  and 
international  trade. 

If  the  several  states  should  refuse  or  fail  to  provide  adequate  facili- 
ties for  the  formation  of  corporations  to  engage  in  interstate  and  in- 
ternational trade,  the  need  of  national  legislation  would  become 
obvious ;  but  the  fact  that  the  several  states  have  enacted  laws 
authorizing  the  formation  of  corporations  to  engage  in  interstate  and 
international  trade  would  not  impair  or  limit  the  power  of  Congress 
to  enact  such  laws,  if  Congress  could  exercise  this  power  in  the  absence 
of  all  state  legislation.  On  the  contrary,  the  diversity  of  the  corpora- 
tion laws  of  the  several  states;  the  practice  which  has  grown  up  of 
forming  corporations  under  the  laws  of  certain  states  for  the  pur- 
pose of  carrying  on  business  principally,  or  w^holly,  in  other  states ; 
the  attempts  of  some  of  the  states  to  increase  their  income  from 
corporation  fees  and  taxes,  by  inviting  the  formation  of  corpora- 
tions under  laws  conferring  wide  powers  and  containing  few  re- 
strictive regulations  for  the  protection  of  the  public ;  and  the 
policy  adopted  by  other  states  of  imposing  burdensome  restrictions 
upon  foreign  corporations ;  —  all  would  furnish  additional  grounds  for 
national  legislation  authorizing  the  formation  of  interstate  trading 
corporations  governed  by  uniform  regulations  with  respect  to  their 
organization,  their  powers,  and  their  management,  and  vested  by 
Congress  with  the  right  to  carry  on  their  business  throughout  the 
United  States. 

In  his  opinion  on  the  constitutionality  of  the  charter  of  the  first 
Bank  of  the  United  States,  Hamilton  said : 

1  Compare  the  Interstate  Commerce  Act,  approved  February  4,  1887,  and  its  various 
amendments ;  the  "  Elkins  Act,"  approved  February  19,  1903  ;  the  Act  to  promote  the  safety 
of  employees  and  travelers  upon  railroads,  approved  March  2,  1903,  and  the  Emploj'ers' 
Liabilitj^  Act,  approved  April  5,  1910. 

2  Hamilton's  opinion  as  to  the  constitutionality  of  the  Bank  of  the  United  States,  Ford's 
edition  of  The  Federalist,  p.  677. 


CORPORATIONS  21; 

It  is  conceded  that  implied  powers  are  to  be  considered  as  delegated  equally 
with  express  ones.  Then  it  follows,  that  as  a  power  of  erecting  a  corpora- 
tion may  as  well  be  implied  as  any  other  thing,  it  may  as  well  be  employed 
as  an  instrument  or  mean  of  carrying  into  execution  any  of  the  specified 
powers,  as  any  other  instrument  or  mean  whatever.  The  only  question 
must  be,  in  this,  as  in  every  other  case,  whether  the  mean  to  be  employed, 
or  in  this  instance,  the  corporation  to  be  erected,  has  a  natural  relation  to 
any  of  the  acknowledged  objects  or  lawful  ends  of  the  government.  Thus  a 
corporation  may  not  be  erected  by  Congress  for  superintending  the  police 
of  the  city  of  Philadelphia,  because  they  are  not  authorized  to  regulate  the 
police  of  that  city.  But  one  may  be  erected  in  relation  to  the  collection 
of  taxes,  or  to  the  trade  with  foreign  countries,  or  to  the  trade  between  the 
States,  or  with  the  Indian  tribes ;  because  it  is  the  province  of  the  federal 
government  to  regulate  those  objects,  and  because  it  is  incident  to  a  general 
sovereign  or  legislative  power  to  regulate  a  thing,  to  employ  all  the  means 
which  relate  to  its  regulation  to  the  best  and  greatest  advantage. 

A  strange  fallacy  seems  to  have  crept  into  the  manner  of  thinking  and 
reasoning  upon  the  subject.  Imagination  appears  to  have  been  unusually 
busy  concerning  it.  An  incorporation  seems  to  have  been  regarded  as  some 
great  independent  substantive  thing;  as  a  political  end  of  peculiar  magni- 
tude and  moment ;  whereas  it  is  truly  to  be  considered  as  a  quahty,  capacity, 
or  mean  to  an  end.  Thus  a  mercantile  company  is  formed,  with  a  certain 
capital,  for  the  purpose  of  carrying  on  a  particular  branch  of  business. 
Here  the  business  to  be  prosecuted  is  the  end.  The  association,  in  order  to 
form  the  requisite  capital,  is  the  primary  mean.  Suppose  that  an  incor- 
poration were  added  to  this,  it  would  only  be  to  add  a  new  quality  to  that 
association,  to  give  it  an  artificial  capacity,  by  which  it  would  be  enabled 
to  prosecute  the  business  with  more  safety  and  convenience.^ 

III.   Franchises  of  National  Corporations 

Power  in  Congress  to  pass  a  national  incorporation  law  implies 
power,  (a)  to  confer  upon  a  corporation  formed  under  the  law  the 
legal  right  or  franchise  to  act  in  a  corporate  capacity  in  carrying  on 
its  business  and  operations  throughout  the  United  States,  without 
regard  to  state  lines,  and  (b)  to  prescribe  the  n>ethod  of  organizing 
the  corporation,  to  define  the  terms  and  effect  of  the  charter  contract 
among  the  shareholders,  and  to  regulate  the  internal  affairs  of  the 
corporation,  including  the  rights  and  obligations  of  its  shareholders 
and  the  method  of  winding  up  its  affairs  in  case  of  dissolution  or 
insolvency. 

Whether  Congress  can  confer  upon  a  corporation  special  rights  or 
franchises,  in  addition  to  the  right  to  act  in  a  corporate  capacity, 
depends  upon  the  purposes  of  the  corporation  and  the  nature  of  the 
special  rights.  The  constitutionality  of  such  a  grant  of  special  rights 
could  not  be  based  on  the  ground  that  the  corporation  was   formed 

'  Ford's  edition  of  The  Federalist,  p.  657.  See  also  the  opinion  of  Chief  Justice  Marshall 
in  M'Culloch  vs.  Mar>-land,  4  Wheat.  (U.S.)  316,  411,  421  (1819). 


214  CORPORATIONS 

under  an  act  of  Congress.  Congress  could  grant  special  rights  to  a 
national  corporation  only  if  it  could  constitutionally  grant  such  special 
rights  to  an  unincorporated  association  or  to  a  state  corporation  for 
similar  purposes.  Thus,  if  the  purpose  of  a  national  corporation  or 
of  a  state  corporation  is  to  build  a  railroad  or  bridge  to  serve  the 
public  as  an  instrument  of  interstate  commerce,  Congress  may  confer 
upon  it  the  right  to  condemn  property  for  that  purpose  and  may 
confer  all  powers  necessary  to  enable  the  corporation  to  establish  and 
operate  its  railroad  or  bridge.  If  the  purpose  is  to  serve  the  national 
government  as  an  instrument  for  carrying  on  some  governmental 
function  or  activity,  Congress  may  confer  upon  the  corporation  all 
powers  necessary  for  the  performance  of  this  function  or  activity 
throughout  the  United  States.^ 

The  act  of  Congress  incorporating  the  second  Bank  of  the  United 
States  conferred  upon  the  bank  the  right  to  engage  in  a  general 
private  banking  business  throughout  the  United  States,  and  the  con- 
stitutionality of  the  grant  of  this  right  was  sustained  on  the  ground 
that  the  bank  could  not  serve  the  national  purpose  for  which  it  was 
established  unless  authorized  to  engage  in  a  general  banking  business.^ 
The  same  rule  was  applied  to  the  provisions  of  the  National  Bank  Act 
under  which  numerous  banks  have  been  organized  to  carry  on  a  general 
banking  business  for  the  profit  of  their  shareholders.  Similarly,  the 
constitutionality  of  the  acts  incorporating  the  Pacific  Railroad  Com- 
panies was  sustained  although  these  companies  were  authorized  to 
engage  in  intrastate  as  well  as  interstate  transportation  and  to  carry  on 
their  business  and  operations  like  other  railroad  companies  in  the  sev- 
eral states.  These  powers  were  necessary  to  enable  these  corporations 
to  accomplish  the  national  purposes  for  which  they  were  established. 

Assuming  that  Congress  has  constitutional  power  to  enact  a  law 
for  the  incorporation  of  companies  to  engage  in  interstate  or  inter- 
national trade,  a  question  may  arise  whether  Congress  could  authorize 
such  companies  to  engage  incidentally  in  intrastate  commerce,  or  to 
carry  on  a  general  trading  business,  including  not  only  interstate  or 
international  trade,  but  also  intrastate  trade.  The  argument  in  favor 
of  the  constitutionality  of  such  a  law  would  not  be  as  strong  as  the 
argument  in  favor  of  the  constitutionality  of  a  law  for  the  incorpora- 
tion of  a  bank  to  serve  as  fiscal  agent  of  the  government,  with  power 
to  engage  in  a  general  banking  business,  or  of  a  law  for  the  incorpora- 
tion of  a  railway  company  to  furnish  a  highway  of  interstate  com- 
merce, with  power  to  engage  in  a  general  railroad  business.  It  may, 
however,  be  urged  with  much  force  that  authority  to  engage  in  trade 
generally,  including  intrastate  trade,  is  a  practical  necessity  to  enable 

1  See  the  opinion  of  Chief  Justice  Marshall  in  Osborn  vs.  Bank  of  United  States,  g  Wheat. 
(U.S.)  86i,  862  (1824).     See  Thomson  vs.  Union  Pacific  R.  Co.,  9  Wall.  (U.S.)  579  (1869). 
*  Osborn  vs.  Bank  of  United  States,  9  Wheat.  (U.S.)  739  (1824). 


CORPORATIONS  215 

a  corporation  to  serve  as  a  means  or  facility  for  the  transaction  of 
interstate  and  international  commerce.  Commerce  is  not  governed 
by  state  lines,  and  the  business  of  a  partnership  or  of  a  corporation 
rarely  consists  wholly  of  interstate  or  international  commerce,  or 
wholly  of  intrastate  commerce.  To  authorize  the  formation  of  a 
trading  corporation  or  copartnership  with  no  power  to  engage  in  any 
commerce  except  interstate  and  international  commerce  would  be 
useless.  If  Congress  cannot  authorize  the  formation  of  corporations 
to  engage  in  interstate  and  international  commerce  with  incidental 
power  to  engage  in  trade  generally,  the  right  to  use  a  corporate 
organization  as  a  means  of  carrying  on  interstate  and  international 
commerce  would  depend  wholly  upon  the  laws  of  the  several  states, 
though  the  national  government  alone  has  constitutional  power  to 
control  and  to  regulate  such  commerce. 

IV.   National  Legislation  relating  to  National  Corporations 

Power  in  Congress  to  pass  an  act  of  incorporation  does  not  include 
power  to  legislate  generally  concerning  the  legality  of  the  transactions 
of  a  corporation  formed  under  the  act,  or  concerning  its  property 
rights,  contracts,  and  liabilities  in  the  several  states.  Such  general 
legislation,  though  embodied  in  the  act  of  incorporation,  could  not 
be  sustained  as  a  regulation  for  the  government  of  the  corporation,  or 
as  a  limitation  of  its  corporate  powers. 

Of  course  Congress  can  regulate  the  transactions  of  national  cor- 
porations to  the  same  extent  as  the  transactions  of  state  corporations 
or  of  individuals.  Thus  Congress  can  regulate  their  interstate  and 
international  commerce ;  and  the  business  of  a  corporation  operating 
a  highway  of  interstate  commerce  or  acting  as  a  public  interstate 
carrier  is  subject  to  regulation  by  Congress  whether  the  corporation 
was  formed  under  an  act  of  Congress  or  under  a  state  law.  Further- 
more, if  a  corporation  should  be  used  by  the  national  government  as 
a  means  of  executing  any  of  its  constitutional  purposes  or  powers, 
Congress  could  enact  laws  governing  the  transactions,  property  rights, 
contracts,  and  liabilities  of  the  corporation  so  far  as  necessary  to 
secure  the  execution  of  the  governmental  purpose  or  power.  Thus 
if  Congress  should  use  a  corporation  as  a  means  of  providing  a  high- 
way, or  a  railway  line,  or  other  transportation  facilities  for  the  inter- 
state commerce  of  the  people,  or  for  the  postal  and  military  operations 
of  the  government.  Congress  could  enact  laws  governing  the  trans- 
actions, property  rights,  contracts,  and  liabilities  of  the  corporation 
so  far  as  necessary  to  attain  these  governmental  purposes  in  a  safe 
and  effective  manner.^     Similarly,  Congress  can  legislate  concerning 

*  Compare  the  Acts  relating  to  the  Pacific  Railroad  Companies,  the  Interstate  Com- 
merce Acts,  the  Safety  Appliance  Acts  and  the  Employers'  Liability  Acts;    and  see  the 


2i6  CORPORATIONS 

the  acts  and  dealings  of  national  banks  so  far  as  may  be  needed  to 
effect  the  national  purposes  served  by  them.^  However,  the  con- 
stitutionality of  such  legislation  would  not  be  based  on  the  ground 
that  the  corporations  to  which  it  appUes  were  formed  under  an  act 
of  Congress.  It  would  be  based  wholly  upon  the  character  of  the 
business  or  transactions  to  which  the  legislation  relates,  or  upon  the 
fact  that  the  corporations  were  employed  by  the  government  as  in- 
strumentalities to  execute  some  constitutional  purpose  or  power  of  the 
government.  Congress  could  enact  such  legislation  applicable  to 
individuals  or  to  state  corporations  under  like  conditions.^ 

If  Congress  should  pass  a  law  for  the  incorporation  of  private 
trading  companies  to  engage  in  interstate  or  international  trade, 
Congress  would  have  the  sole  power  to  regulate  their  interstate  or 
international  commerce,  to  limit  their  corporate  purposes  and  powers, 
and  to  regulate  their  management  and  internal  affairs,  but  their  intra- 
state commerce,  and  their  property  rights,  contracts,  and  liabilities  in 
the  several  states  could  not  be  regulated  by  Congress  and  would  be 
governed  by  the  laws  of  the  states. 

V.   State  Laws  affecting  National  Corporations 

The  rule  that  the  operation  of  a  constitutional  law  enacted  by 
Congress  cannot  be  controlled  or  limited  by  state  legislation  applies 
to  national  acts  of  incorporation.  Thus  a  state  cannot  by  law  inter- 
fere with  the  operation  of  the  provisions  of  the  National  Bank  Act 
relating  to  usurious  transactions  of  national  banks,^  or  to  the  winding 
up  of  national  banks  and  distribution  of  their  assets  in  case  of  insol- 
vency.* Similarly  a  state  cannot  by  law  prohibit  a  national  bank 
from  receiving  deposits  when  insolvent  and  impose  a  penalty  upon 
the  officers  of  a  bank  violating  the  prohibition.^  It  is  clear  also  that 
the  states  cannot  constitutionally  defeat  the  purpose  or  impair  the 
efficiency  of  a  corporation  established  under  authority  of  a  national 
law  as  an  instrumentality  or  agency  of  the  national  government,  even 
though  no  express  provision  of  the  national  law  be  infringed.^  How- 
ever, subject  to  the  Umitations  above  stated,  national  corporations 

Second  Employers'  Liability  Cases,  223  LT.S.  i  (1912)  and  cases  cited.  It  should  be  observ-ed 
that  the  power  of  Congress  to  pass  such  legislation  applicable  to  railway  lines  used  in  the 
postal  and  military  operations  of  the  Government  would  not  depend  upon  the  fact  that 
the  lines  were  interstate  lines  or  were  used  in  the  transaction  of  interstate  commerce. 

'  See  Farmers',  etc.  Bank  vs.  Bearing,  91  U.S.  29  (1875) ;  Davis  vs.  Elmira  Savings  Bank, 
161  U.S.  275  (1896). 

2  See  the  opinion  of  Chief  Justice  Marshall  in  Osborn  vs.  Bank  of  United  States,  9  Wheat. 
(U.S.)  862-864  (1824). 

'Farmers',  etc.  Bank  vs.  Bearing,  91  U.S.  29  (1875). 

^Ba\-is  vs.  Elmira  Savings  Bank,  161  U.S.  275  (1896).  See  also  Rankin  vs.  Barton,  199 
U.S.  228  (190s). 

'  Easton  vs.  Iowa,  188  U.S.  220  (1903). 

'See  M'Culloch  vs.  Maryland  and  Osborn  vs.  Bank  of  United  States,  supra. 


CORPORATIONS  217 

are  subject  to  the  operation  of  the  general  laws  of  the  several  states. 
In  First  National  Bank  vs.  Kentucky  ^  Mr.  Justice  Miller  used  the 
following  language : 

They  [national  banks]  are  subject  to  the  laws  of  the  State,  and  are  governed 
in  their  daily  course  of  business  far  more  by  the  laws  of  the  State  than  of 
the  Nation.  All  their  contracts  are  governed  and  construed  by  state  laws. 
Their  acquisition  and  transfer  of  property,  their  right  to  collect  their  debts, 
and  their  Hability  to  be  sued  for  debts,  are  all  based  on  state  law.  It  is 
only  when  the  state  law  incapacitates  the  banks  from  discharging  their 
duties  to  the  government  that  it  becomes  unconstitutional. 

VI.   State  Taxation  of  National  Corporations 

Congress  may  exempt  from  state  taxation  the  business  and  opera- 
tions of  a  national  corporation  serving  the  government  as  an  instru- 
ment in  the  execution  of  some  governmental  purpose  or  power,  or 
serving  the  public  as  an  instrument  of  interstate  or  international 
commerce,  and  it  seems  that  Congress  also  may  exempt  from  state 
taxation  any  property  held  and  used  by  such  a  corporation  in  the 
service  of  the  government  or  of  the  public.  The  power  of  Congress 
to  exempt  the  business  or  property  of  such  a  corporation  from  state 
taxation  would  not  be  based  upon  the  corporate  character  of  the 
organization  or  upon  the  fact  that  the  corporation  was  chartered  by 
Congress,  but  it  would  be  based  upon  the  purposes  of  the  corporation 
and  the  governmental  or  public  uses  to  which  its  property  was  devoted. 
Congress  could  grant  such  an  exemption  to  a  national  corporation 
only  if  it  could  constitutionally  grant  a  similar  exemption  to  state 
corporations  or  to  indi\'iduals  under  similar  circumstances.' 

In  the  absence  of  an  express  exemption  from  state  taxation,  the 
rule  appears  to  be  as  follows :  The  right  or  franchise  to  carry  on  the 
business  or  operations  of  a  corporation  formed  by  authority  of  the 
national  government  to  serve  as  a  governmental  agency  or  to  serve 
the  public  as  an  instrument  of  interstate  or  international  commerce 
cannot  be  taxed  by  the  states,  but  the  property  of  the  corporation 
may  be  taxed  by  the  states  in  the  same  manner  as  the  property  of 
individuals  and  state  corporations,  provided  that  the  governmental 
or  public  purposes  of  the  corporation  be  not  impaired.  If,  however, 
a  corporation  was  not  formed  to  serve  as  an  agency  of  the  go\-ern- 
ment  or  to  serve  a  public  use,  but  was  formed  merely  to  serve  its  share- 
holders as  a  means  of  carrying  on  interstate  or  international  trade 
for  private  profit,  the  corporation  and  its  transactions  would  be  sub- 
ject to  taxation  and  to  other  state  legislation  to  the  same  extent  as 

'  9  Wall.  (U.S.)  353  (1869).     See  also  Railroad  Co.  vs.  Peniston,  i8  Wall.  (U.S.)  S- 
«C/.  Thomson  vs.  Railroad  Co.,  9  Wall.  (U.S.)  579  (1869);   Railroad  Co.  vs.  Peaiston, 
18  Wall.  (U.S.)  5  (1873). 


2i8  CORPORATIONS 

individuals  and  unincorporated  companies  engaged  in  a  similar  busi- 
ness. Only  the  interstate  and  international  commerce  of  such  a 
corporation  and  its  right  or  franchise  to  be  a  corporation  and  to  act 
in  a  corporate  capacity  would  be  exempt  from  state  taxation. 

In  M'Culloch  vs.  Maryland  ^  the  Supreme  Court  decided  that  a 
statute  of  the  state  of  Maryland  prohibiting  the  Bank  of  the  United 
States  from  issuing  notes  within  the  state  except  upon  payment  of  a 
tax  to  the  state  and  imposing  a  penalty  upon  officers  of  the  bank 
violating  this  prohibition  was  unconstitutional,  because  it  was  a  tax 
on  the  operations  of  the  bank  and  consecjuently  on  the  operations  of 
an  instrument  employed  by  the  government  of  the  Union  to  carry 
its  powers  into  execution.  But  the  court  pointed  out  that  a  state 
could  impose  a  tax  on  the  real  property  of  the  bank  in  common  with 
other  real  property  within  the  state,  or  a  tax  upon  the  interest  of 
citizens  of  the  state  in  the  bank  in  common  with  other  property  of 
the  same  description  throughout  the  state.^ 

Similarly,  in  cases  involving  the  constitvitionality  of  state  taxes 
imposed  upon  railroad  companies  authorized  by  Congress  to  build 
and  maintain  interstate  lines  of  railway  the  Supreme  Court  held  that 
a  state  could  not  constitutionally  tax  the  franchise  or  right  to  carry 
on  their  operations  conferred  upon  these  companies  by  the  United 
States,  whether  the  companies  were  incorporated  under  the  laws  of 
the  United  States  or  under  state  laws,^  but  that  a  state  could  tax  the 
property  of  these  companies  equally  with  other  property  within  its 
jurisdiction.^ 

VII.   National  Control  and  Regulation  of  State 

COBPORATIONS 

Congress  has  power  to  regulate  the  interstate  and  international 
commerce  of  state  corporations  to  the  same  extent  as  that  of  partner- 
ships and  of  individuals,  and  there  appears  to  be  no  constitutional 
reason  why  Congress  should  not  enact  regulations  applicable  only 
to  the  commerce  of  corporations. 

1  4  Wheat.  (U.S.)  316  (1810). 

2  4  Wheat.  (U.S.)  436  (1819).  In  Osborn  vs.  Bank  of  the  United  States,  the  court  held 
that  a  tax  imposed  by  the  state  of  Ohio  upon  the  bank  for  each  ofiSce  of  discount  and  deposit 
maintained  by  it  within  the  state  was  unconstitutional  because  a  tax  upon  the  business  or 
franchise  of  the  bank. 

The  power  of  the  states  to  tax  the  property  of  national  banks  and  the  shares  of  their 
stockholders  is  regulated  by  the  National  Bank  Act.  (U.S.  Rev.  Stat.,  Sect.  5219.)  See 
Covington  vs.  First  Nat.  Bank,  19S  U.S.  100  (1904) ;  Owensboro  Nat.  Bank  vs.  Owensboro, 
173  U.S.  664  (1899) ;  Van  Slyke  vs.  Wisconsin,  154  U.S.  5S1  (1871) ;  .\berdeen  Nat.  Bank. 
vs.  Chehalis  County,  166  U.S.  440  (1897) ;  National  Bank  vs.  Commonwealth,  9  Wall. 
(U.S.)  353  (1869). 

2  California  vs.  Pacific  Railroad  Co.,  127  U.S.,  i,  40  el  seq.  (1887). 

^  Thomson  vs.  Union  Pacific  R.  Co.,  Eastern  Division,  9  Wall.  (U.S.)  579  (1869) ;  Union 
Pacific  R.  Co.  vs.  Peniston,  18  Wall.  (U.S.)  5  (1873).  See  also  Western  Union  Tel.  Co.  vs. 
Massachusetts,  125  U.S.  530,  531  (1888). 


CORPORATIONS  219 

A  plan  has  been  suggested  of  regulating  state  corporations  engaged 
in  interstate  or  international  commerce  by  an  act  of  Congress  pro- 
hibiting them  from  engaging  in  such  commerce,  except  upon  obtain- 
ing from  some  government  official  a  license  to  be  issued  only  upon 
compliance  with  prescribed  regulations  with  respect  to  the  issue  of 
their  stocks  and  bonds,  the  conduct  of  their  business  and  the  manage- 
ment of  their  internal  affairs.  Against  the  constitutionality  of  such 
legislation  it  may  be  urged  that  the  right  of  corporations,  as  well  as 
of  partnerships  and  individuals,  to  engage  in  interstate  and  inter- 
national commerce  is  not  derived  from  the  national  government  and 
does  not  exist  merely  by  grace  or  license  of  that  government ;  that  the 
Constitution  does  not  confer  upon  Congress  power  to  prohibit  inter- 
state or  international  commerce,  but  only  confers  power  to  regulate 
it ;  that  the  power  of  regulation  extends  only  to  acts  done  in  carrying 
on  commerce  and  to  matters  connected  directly  with  the  transaction 
of  commerce ; '  and  that  the  organization,  powers,  and  internal  affairs 
of  trading  corporations  are  not  directly  connected  with  the  trans- 
action of  commerce,  but  bear  only  a  remote  relation  thereto. 

Strong  arguments,  however,  can  be  advanced  in  support  of  the  con- 
stitutionality of  such  legislation.  No  state  can  confer  a  legal  right 
or  franchise  to  act  in  a  corporate  capacity  in  other  states,  and  Congress 
alone  is  vested  by  the  Constitution  with  the  power  to  legislate  for 
the  regulation  of  interstate  and  international  commerce.  The  organi- 
zation, powers,  and  financial  condition  of  a  trading  corporation  may 
have  a  direct  and  important  relation  to  the  transaction  of  interstate 
and  international  commerce,  and  may  be  of  such  a  character  as  to 
render  the  commercial  operations  of  the  corporation  a  menace  to  the 
security  and  welfare  of  the  people  of  all  the  states.  A  statute  pro- 
hibiting the  transaction  of  interstate  commerce  by  means  of  a  cor- 
porate organization  which  is  a  menace  to  the  security  of  the  public 
would  seem  justifiable  as  an  exercise  of  the  police  power  over  inter- 
state commerce  and  as  a  regulation  of  such  commerce  within  the 
meaning  of  the  Constitution.  Furthermore,  if  interstate  and  inter- 
national commerce  cannot  be  carried  on  in  an  orderly  manner  and  with 
safety  to  the  public  by  a  multitude  of  corporations  organized  under 
the  diverse  and  varying  legislation  of  forty-eight  different  states 
and  subject  in  each  state  to  special  regulations  and  restrictions,  it 
would  seem  justifiable,  under  the  power  to  regulate  interstate  and 
international  commerce,  to  require  all  corporations  engaging  in  such 
commerce  to  comply  with  any  appropriate  regulations  for  the  pro- 
tection  of   the   public   and    also   to    confer    upon    all    corporations 

1  Thus  although  the  products  of  agriculture  and  of  manufacturing  may  become  important 
objects  of  trade  and  commerce,  Congress  cannot  on  that  account  regulate  agriculture  or 
the  business  of  manufacturing.  Agriculture  and  manufacturing  are  not  in  themselves 
commerce  or  any  part  of  commerce,  and  they  have  no  direct  connection  with  the  trans- 
action of  commerce. 


220  CORPORATIONS 

complying  with  the  prescribed  regulations  a  legal  right  or  franchise  to 
carry  on  their  interstate  and  international  commerce  throughout  the 
United  States,  free  from  restrictions  imposed  by  the  several  states. 

Congress  has  power  to  require  corporations  and  other  associations 
engaged  in  interstate  or  international  commerce  to  file  reports  as  to 
their  organization,  powers,  and  financial  condition.^  Congress  also 
may  provide  for  the  appointment  of  officers  and  commissions  to  act 
as  police  of  interstate  commerce  and  to  administer  and  enforce  all 
constitutional  regulations  prescribed  by  law.^  Congress,  therefore, 
may  vest  in  a  national  commission  or  in  some  public  officer  all  neces- 
sary powers  for  the  enforcement  of  any  constitutional  regulations 
enacted  by  Congress  with  respect  to  trading  corporations  engaged  in 
interstate  or  international  commerce.  Such  a  commission  or  public 
officer  may  be  required  by  law  to  issue  to  every  corporation  that  shall 
have  complied  with  the  prescribed  regulations  a  certificate  of  such 
compliance  in  the  form  of  a  license ;  and  there  seems  to  be  no  good 
reason  why  such  certificates  should  not  be  made  prima  facie  evidence 
of  compliance  with  the  prescribed  regulations,  or  why  corporations 
should  not  be  prohibited  from  engaging  in  interstate  or  international 
commerce  until  they  shall  have  obtained  such  certificates. 

The  power  of  Congress  to  enact  such  legislation  would  not  be  based 
upon  the  theory  that  the  right  to  transact  interstate  and  international 
commerce  through  a  corporate  organization  was  derived  from  Con- 
gress or  was  conferred  by  national  license,  or  upon  the  theory  that 
Congress  has  power  to  regulate  the  organization,  powers,  or  manage- 
ment of  state  corporations.  It  would  be  based  upon  the  theory  that 
a  corporate  organization  is  but  a  means  of  transacting  commerce, 
and  that  under  its  power  to  regulate  interstate  and  international 
commerce  Congress  can  prohibit  the  transaction  of  such  commerce 
by  means  of  any  corporate  organization  which  in  its  opinion  is  unsafe 
or  otherwise  prejudicial  to  the  interstate  commerce  of  the  public. 

An  attempt  on  the  part  of  Congress  to  control  or  regulate  state 
corporations  by  means  of  the  imposition  of  prohibitory  excise  taxes 
should  not  be  countenanced.  It  has  been  asserted  that  a  legislature 
may  use  its  taxing  power  not  only  as  a  means  of  raising  revenue,  but 
also  as  a  means  of  securing  by  indirection  results  which  the  legislature 
could  not  constitutionally  attain  by  direct  legislation ;  and  in  sup- 
port of  this  assertion  reference  has  been  made  to  the  dictum  of  Chief 
Justice  Marshall  that  "the  power  to  tax  involves  the  power  to  de- 
stroy." ^  This  dictum,  like  other  striking  phrases  of  that  great  jurist, 
has  sometimes  been  quoted  without  reference  to  its  context  and  in 

1  See  the  Interstate  Commerce  Act  of  February  4,  1887,  with  its  amendments,  and  the 
Act  of  February  14,  1903,  establishing  the  Department  of  Commerce  and  Labor  and  pro- 
viding for  the  appointment  of  a  Commissioner  of  Corporations. 

2  See  the  Interstate  Commerce  Act  of  February  4,  1887,  and  its  amendments. 
"M'Culloch  vs.  Maryland,  4  Wheat.  (U.S.)  316,  431  (1819). 


CORPORATIONS  221 

support  of  doctrines  which  it  does  not  justify.  The  statement  that 
"the  power  to  tax  involves  the  power  to  destroy"  was  made  in  sup- 
port of  the  conclusion  that  a  state  could  not  tax  the  operations  of  an 
instrument  of  the  national  government  and  thus  control  its  constitu- 
tional measures ;  but  Chief  Justice  Marshall  certainly  did  not  mean 
to  imply  that  the  taxing  power  could  constitutionally  be  used  as  a 
pretext  for  the  accomplishment  of  an  unconstitutional  object.  That 
this  was  not  his  meaning  is  apparent  from  his  statement  in  the  same 
case  that  "should  Congress,  under  the  pretext  of  executing  its  powers, 
pass  laws  for  the  accomplishment  of  objects  not  intrusted  to  the 
government,  it  would  become  the  painful  duty  of  this  tribunal,  should 
a  case  requiring  such  a  decision  come  before  it,  to  say  that  such  an 
act  was  not  the  law  of  the  land."  Undoubtedly,  the  courts  would 
not  be  justified  in  scrutinizing  the  reasonableness  of  a  tax,  or  the 
wisdom  or  motive  of  Congress  in  imposing  it ;  but  if  it  should  appear 
plainly  that  a  law  nominally  imposing  a  tax  was  not  really  a  revenue 
measure,  but  in  fact  was  an  act  of  confiscation,  or  a  mere  pretext  for 
the  accomplishment  of  some  purpose  not  warranted  by  the  Constitu- 
tion, the  Supreme  Court  could  not  sustain  such  a  law  without  abdicat- 
ing its  highest  function  and  permitting  the  practical  nullification  of 
the  Constitution  itself. '^ 


THE   CASE   OF   THE   MONOPOLIES  —  SOME   OF   ITS 
RESULTS  AND   SUGGESTIONS 

By  Sidney  T.  Miller  of  the  Detroit  Bar 

(From  the  Michigan  Law  Review,  November,  1907) 

The  most  prodigious  form  the  corporation  has  assumed  is  the  trust  or 
monopoly.  The  trust  problem  is  not  the  whole  of  the  corporation  prob- 
lem, by  any  means,  although,  in  the  popular  conception,  it  seems  to  be  so. 
It  is  only  the  most  immediate  phase,  the  most  imminent  phase,  of  the 
whole  question  of  how  to  organize  business,  allowing  it  necessary  freedom, 
without  endangering  the  community.  The  literature  on  the  trust  problem 
is  vast.  Only  three  articles  are  presented  here:  Professor  Frederic  Jesup 
Stimson's  setting  forth  the  law  of  combined  action  and  possession ;  ISIr 
Miller's  article  dealing  with  the  historic  case  of  the  monopolies,  which 

1  See,  however,  the  opinion  of  Mr.  Justice  White  in  McCray  vs.  United  States,  igs  U.S. 
27  (1903).  In  this  case  the  Supreme  Court  refused  to  declare  unconstitutional  a  tax  on 
the  manufacture  of  artificially  colored  oleomargarine,  though  the  tax  obviously  was  not  a 
revenue  measure,  and  held  that  the  right  to  manufacture  artificially  colored  oleomargarine 
was  not  protected  by  the  Constitution.  The  decision  of  the  Supreme  Court  in  Veazie  vs. 
Fenno,  8  Wall.  (U.S.)  533  {i86g)  that  the  imposition  by  Congress  of  a  prohibitory  tax  upon 
state  bank  notes  was  constitutional  may  be  sustained  on  the  ground  that  Congress  could 
absolutely  prohibit  the  issue  of  such  bank  notes  as  a  necessary  incident  to  the  creation  of 
the  national  banking  and  currency  system. 


222  CORPORATIONS 

ushered  in  such  platoons  of  legal  adversaries ;  and  Professor  Wilgus's  well- 
known  analysis  of  the  Standard  Oil  decision,  which  was  the  culmination  of 
our  attempt  to  apply  the  Sherman  Law  to  the  greatest  of  modern  monopo- 
lies. —  Editor's  Note. 

Apparently  the  monopolistic  idea  is  as  old  as  the  history  of  man. 
That  great  and  good  man,  Job,  may  be  counted  as  the  earliest  re- 
corded "trust-buster,"  ^  if  we  read  between  the  lines  of  his  story,  and 
Solomon  said,^  "He  that  withholdeth  corn,  the  people  shall  curse 
him;   but  blessing  shall  be  upon  the  head  of  him  that  selleth  it." 

Doubtless,  by  exhaustive  search,  we  could  find  some  record  of 
attempts  to  monopolize  during  each  century  from  Biblical  days  to 
the  time  of  printing,  and  as  surely  there  must  have  been  a  counter- 
movement. 

But  not  until  the  last  five  hundred  years  of  English  history  have 
the  pros  and  cons  crystallized  in  such  a  way  as  to  be  of  intelligent 
use  to  us.  In  legal  records,  the  "Case  of  the  Monopolies"  is  the  first 
meeting,  head-on  and  with  a  clear  field,  of  the  monopolists  and  anti- 
monopolists,  and  it  therefore  seems  worthy  of  close  scrutiny.  If  we 
uncover  the  reasons  for  this  particular  quarrel  we  shall  find  something 
like  this : 


In  the  early  days  of  England,  kings,  like  common  folk,  often  were 
in  straits  for  money.  In  olden  times,  when  the  "divine  right"  was 
part  of  the  religion  of  the  nation,  a  short  cut  to  relief  for  the  empty 
purse  was  found  by  a  war  of  conquest.  If  the  ruler  were  not  powerful 
enough  for  this  he  resorted  to  petty  measures,  confiscating  the  property 
of  his  wealthier  subjects  on  trumped-up  charges  of  treason,  or  by  levy- 
ing taxes. 

But  by  the  latter  part  of  the  reign  of  Elizabeth  the  people  had 
become  a  power.  Whether  the  crown  wished  or  not,  they  had  to  be 
consulted  in  matters  of  taxation.  Parliament,  too,  had  some  say 
about  attainders  for  treason,  and  confiscation.  The  old  short  cuts 
were  shut  ofif;  new  expedients  must  be  found,  therefore,  for  helping 
the  treasury. 

Whatever  else  may  be  said  of  the  ancestors  of  our  nation  we  must 
admire  the  way  the  lawyers  met  any  emergency  which  arose.  Some 
poor  bailiff  ran  off  with  the  funds  of  his  lord,  —  instead  of  sighing 
for  the  sweet  old  days  when  he  might  have  chased  him  with  blood- 
hounds and  have  strung  him  up  when  caught,  the  good  baron  who 
was  robbed  took  himself  to  the  law  —  a  new  remedy  must  be  devised, 
and  lo,  the  writ  of  capias  was  born.     Again,  a  cleric  declined  to  give 

1  Job,  29. 

2  Proverbs,  11:  26.     See  also  Genesis,  chap,  xlvii,  for  an  account  of  Pharaoh's  monopoly. 


CORPORATIONS  223 

up  a  fat  living.  He  was  not  clapped  in  a  town  jail,  or  taken  to  the 
tower  and  branded.  Those  methods  had  gone  out  of  fashion.  The 
law  must  rule  —  if  it  did  not  reach  the  case,  stretch  it  a  httle  and 
devise  a  new  writ.  So  the  clerics  became  responsible  for  the  writ  of 
quo  warranto.  The  remedies  sprang  full-armed  from  the  courts, 
fathered  by  the  inventive  genius  of  the  old  English  bar. 

So  to  some  shrewd  counselor  of  the  earlier  days  must  be  attributed 
the  idea  of  formally  granting  special  privileges  to  favored  mortals 
as  a  means  of  revenue  to  the  crown  or  as  a  reward  for  services  rendered. 
These  grants  grew  until  they  became  in  most  cases  monopolies,  and 
were  in  fact  styled  "monopolies"  or  "purveyances."  The  scheme 
was  a  ready  and  easy  makeshift,  to  enable  the  sovereign  to  obtain 
coin  when  needed. 

The  practice  reached  its  climax  while  Elizabeth  was  in  power.  A 
list  of  her  grants  includes  patents  giving  the  sole  rights  to  sell  or  manu- 
facture currants,  salt,  iron,  powder,  cards,  calf-skins,  fells,  pouldavies, 
ox-shin  bones,  train-oil,  lists  of  cloth,  potashes,  aniseseed,  vinegar, 
sea-coals,  steel,  aqua-vitre,  brushes,  pots,  saltpeter,  bottles,  lead,  ac- 
cidences,  oil,  calamine- stone,  oil-of-blubber,  glasses,  paper,  starch,  tin, 
sulphur,  new  drapery,  dried  pilchards,  beer,  horn,  leather,  Irish  yarn, 
importation  of  Spanish  wool,  and  transportation  of  iron  ordinance.^ 

These  monopolists  were  less  merciful  than  their  successors  of 
to-day,  as  it  is  noted  that  they  raised  the  price  of  salt  from  sixteen 
pence  a  bushel  to  fourteen  or  fifteen  shillings.^ 

The  Virgin  Queen  also  distinguished  herself  by  chartering  the 
East  India  Company,  then  called  the  "Governor  and  Company  of 
London  trading  to  the  East  Indies,"  which  was  a  fine  pattern  of 
monopoly.^    This  was  in  the  last  year  of  the  sixteenth  century  and 

■  To  golf  enthusiasts  this  may  be  of  interest. 

On  June  26th,  1626,  WilHam  and  Thomas  Dickson,  makers  of  "gowffe"  balls  in  Leith, 
complained  to  the  Privy  Council  that  James  Melville,  quartermaster  of  Lord  Morton's 
regiment,  pretends  that  he  had  a  gift  from  James  VI  for  excluding  a  certain  import  on 
golf  balls  and  for  exacting  "an  import  off  every  gowffe  ball  made  within  this  kingdom," 
which  their  lordships  had  never  ratified  —  on  Feb.  20th,  Melville  sent  "lawless  soldiours" 
who  took  from  Dickson's  house  a  great  number  of  "gowSe  balls,"  which  they  had  made  for 
his  majesty's  use. 

Dicksons  were  fined  five  pounds,  and  one  hundred  pounds,  - —  "caution,"  — 
See  "Sphere,"  February  22,  igo2.     "Privy  Council  of  Scotland." 

2  Hume's  History  of  England,  Vol.  IV,  p.  209;  some  of  the  things  named  are  strange 
to  us :  pouldavies,  a  coarse  canvas ;  calamine-stone,  a  kind  of  zinc-silicate ;  pilchards,  a 
small  herring-like  fish. 

'  For  a  graphic  introduction  to  the  possibilities  of  this  company  see  Macaulay's  History 
of  England,  Vol.  IV,  p.  104,  ct  scq.  Sir  Josiah  Child's  career  is  a  curious  parallel  of  many 
a  self-made  man's  rise  in  our  contemporary  "Trusts."  The  charter  for  the  companj'  was 
granted  in  1599,  and  its  rights  were  practically  unchallenged  for  nearly  a  century.  It  is 
noteworthy,  too,  that  under  Elizabeth  were  ratified  letters  patent  granted  by  Henry  VHI 
in  1534  to  the  University  of  Cambridge  licensing  it  to  appoint  three  printers  to  print  and 
sell  all  books  approved  by  the  Chancellor  and  three  Doctors.  This  was  a  monopoly  limited 
geographically,  but  is  interesting  as  a  forerunner  of  the  famous  "Stationers'  Company," 
which  so  long  held  all  writers  in  its  strong  grasp.  See  Birrell's  Law  and  History  of  Copy- 
right, p.  56. 


224  CORPORATIONS 

before  the  nation  had  expressed  any  formally  pronounced  disapproval 
of  the  grants. 

But  the  fruit  which  was  sweet  to  the  favored  few  was  bitter  to  the 
taste  of  the  many.  In  1597  unsuccessful  protests  had  been  made  in 
Parliament,  and  in  1601  a  list  of  monopolies  was  made  out  and  it 
was  proposed  to  abolish  them  by  law.  Sharp  discussion  followed : 
Francis  Bacon  took  the  side  of  the  royal  prerogative,  and  Sergeant 
Heyle  asserted  that  the  queen  could  take  what  she  pleased  from  the 
subject  of  her  regal  right. ^  The  discontent  of  the  people  nerved  the 
Parliamentary  opponents  of  the  grants,  however,  and  they  stood  firm. 

As  Macaulay  says  (Vol.  I,  p.  49,  of  his  History  of  England) : 

Itwasini6oi  that  the  opposition  which  had,  during  forty  years,  been  silently 
gathering  and  husbanding  strength,  fought  its  first  great  battle  and  won  its 
first  victory.  The  ground  was  well  chosen.  The  English  sovereigns  had  al- 
ways been  intrusted  with  the  supreme  direction  of  commercial  police.  It  was 
their  undoubted  prerogative  to  regulate  coin,  weights  and  measures,  and  to 
appoint  fairs,  markets  and  ports.  The  line  which  bounded  their  authority 
over  trade  had,  as  usual,  been  but  loosely  drawn.  They  therefore,  as  usual, 
encroached  on  the  province  which  rightfully  belonged  to  the  legislature. 
The  encroachment  was,  as  usual,  patiently  borne,  till  it  became  serious.  But 
at  length  the  queen  took  upon  herself  to  grant  patents  of  monopoly  by 
scores.  Iron,  oil,  vinegar,  coal,  etc.,  etc.,  could  be  bought  only  at  exorbi- 
tant prices.  The  House  of  Commons  met  in  an  angry  and  determined 
mood.  There  seemed  for  a  moment  some  danger  that  the  long  and  glorious 
reign  of  Elizabeth  would  have  a  shameful  and  disastrous  end.  She,  how- 
ever, with  admirable  judgment  and  temper,  declined  the  contest,  put 
herself  at  the  head  of  the  reforms,  redressed  the  grievance,  thanked  the 
Commons,  etc.,  etc. 

This  was  a  popular  triumph  but  was  comparatively  barren  of 
results.  A  great  number  of  the  hated  gifts  of  the  crown  still  re- 
mained in  force.  It  seemed  to  many  that  they  had  been  tricked  and 
the  spirit  of  discontent  was  not  downed.-  Encouraged  by  the  strength 
shown  in  Parliament  a  case  was  pressed  to  test  the  legality  of  the 
grants.  That  was  the  famous  Case  of  the  Monopolies,  reported  in 
XI  Coke,  page  85,  under  the  title  of  Darcy  vs.  Allein,  and  decided  in 
1602,  44th  Elizabeth.  The  plaintiff  was  a  groom  of  the  queen's  privy 
chamber ;   the  defendant  a  haberdasher  in  London.     The  action  was 

*  See  Skottowe's  Short  History  of  the  English  Parliament,  p.  54. 

*  Campbell,  Puritan  in  Holland,  England  and  America,  Vol.  II,  p.  175.  Green  says 
that  all  obnoxious  grants  were  canceled,  —  "she  (the  queen)  acted  with  her  usual  ability, 
declared  her  previous  ignorance  of  the  existence  of  the  evil,  thanked  the  House  for  its 
interference,  and  quashed  at  a  single  blow  every  monopoly  that  she  had  granted."  Short 
History  of  the  English  People,  Vol.  II,  p.  813.  Either  this  statement  is  wrong  or  else  some 
of  the  grants  were  speedily  renewed.  Green  (Vol.  Ill,  p.  1072)  says  they  were  revived 
under  Charles  I,  but  it  woiild  seem  that  some  of  them  not  only  had  been  spared  by  EHza- 
beth  but  had  actually  struggled  through  the  Act  of  Parliament  passed  imder  James  I  to 
officially  extinguish  them. 


CORPORATIONS  225 

on  the  case  for  damages  and  was  based  on  a  patent  given  the  plaintiff 
by  Queen  Elizabeth.  From  the  brief  synopsis  given  by  Coke,  it 
seems  that  this  patent  had  been  preceded  by  another  to  one  Bowes, 
giving  the  same  powers,  in  practically  the  same  terms  and  privileges : 
in  the  recital  of  Bowes'  patent,  no  mention  is  made  of  any  money 
returned  to  the  crown,  but  in  Darcy's  an  annual  payment  of  one 
hundred  marks  is  required,  and  Darcy's  is  for  twenty-one  years  while 
Bowes'  was  for  twelve,  but  in  the  main  they  are  identical. 
.  Under  this  patent  the  patentee  was  exclusively  empowered  to  im- 
port or  manufacture  playing  cards  and  to  sell  them  in  the  realm.  No 
one  else  should  assume  these  rights  "upon  pain  of  the  Queen's  highest 
displeasure,  and  of  such  fine  and  punishment  as  offenders  in  the  case 
of  voluntary  contempt  deserve."  A  good  reason  for  the  "  displeasure  " 
is  set  forth  in  the  artful  preamble  of  the  declaration.  Coke,  who  had 
been  made  Attorney-General  over  so  strong  a  candidate  as  Bacon 
some  years  before,  appeared  for  the  plaintiff,  and  it  seems  as  though 
his  skillful  hand  had  probably  framed  the  pleading.  It  recites  that 
the  Queen  "intending  that  her  subjects  being  able  men  to  exercise 
husbandry,  should  apply  themselves  thereunto,  and  that  they  should 
not  employ  themselves  in  making  playing  cards,  which  had  not  been 
an  ancient  manual  occupation  within  this  realm,  and  that  by  making 
such  a  multitude  of  cards,  card-playing  was  becoming  more  frequent, 
and  especially  among  servants  and  apprentices,  and  poor  artificers; 
and  to  the  end  her  subjects  might  employ  themselves  to  more  lawful 
and  necessary  trades,  by  her  letters  patent"  granted,  etc. 

It  was  thus  introduced  to  the  court  not  as  a  monopoly  meant  to 
make  money  from  those  of  moderate  means  seeking  some  pleasure  in 
an  age  of  few  pastimes,  but  as  a  healthful  police-measure,  protecting 
the  general  morals.  Under  the  patent  the  price  of  the  cards  was  so 
high  ^  that  they  would  be  beyond  the  reach  of  any  except  the  very 
wealthy  whose  morals  were  either  beyond  reproach  or  past  repair,  so 
that  cards  could  do  no  hurt  in  either  case. 

The  defendant  pleaded  "not  guilty"  except  as  to  one-half  gross  — 
as  to  that  half  gross  he  claimed  that  he  belonged  to  the  society  or 
guild  of  Haberdashers  of  the  "ancient  city"  of  London,  and  as  a 
citizen  and  member  of  that  society,  ancient  and  time-honored  usage 
guaranteed  him  the  right  to  buy  and  sell  freely  any  merchandise. 

We  may  assume  that  the  proof  sustained  the  pleadings.  The 
points  against  the  grant.  Coke  sets  out  in  such  detail  that  it  arouses 
some  suspicion  that  he  liked  that  side  the  better.  Among  the  counsel 
in  the  case  we  find  Coke,  Attorney- General,  upholding  the  grant,  and 

1  400  gross  (or  57,600  cards)  cost  5000  pounds,  or  more  than  a  shilling  each. 

This  grant  covered  all  kinds  of  cards.  Some  were  very  elaborate.  Prince  Eugene  had 
a  pack  made  of  ivory  which  he  is  said  to  have  carried  through  his  campaigns,  —  and  an 
interesting  set  is  now  in  the  Bodleian  Library  at  Oxford,  giving  scenes  from  the  life  of  Dr. 
Sacheverel,  whose  sensational  career  is  described  in  McCarthy's  Queen  .\nne. 


226  CORPORATIONS 

against  it  Altham,  afterward  Baron  of  the  Exchequer,  and  Tanfield, 
afterward  Lord  Chief  Baron  of  the  Exchequer.  The  arguments  are 
in  part  set  forth  in  the  reports  as  follows : 

It  was  claimed  the  grant  "of  sole  making  of  playing  cards"  was  good 
for  three  reasons. 

1.  Because  the  said  playing  cards  were  not  any  Merchandise  or  Thing 
concerning  Trade  of  any  necessary  Use,  but  Things  of  Vanity  and  the  Occa- 
sion of  loss  of  Time,  and  Decrease  of  the  Substance  of  many,  the  Loss  of  the 
Service  and  Work  of  Servants,  Causes  of  Want,  which  is  the  Mother  of  Wo 
and  Destruction,  and  therefore  it  belongs  to  the  Queen  to  take  away  the 
great  Abuse,  and  to  take  Order  for  the  moderate  and  convenient  Use  of 
them. 

2.  In  Matters  of  Recreation  and  Pleasure  the  Queen  has  a  Prerogative 
given  her  by  the  Law  to  take  such  Order  for  such  Moderate  Use  of  them  as 
seems  good  to  her. 

3.  The  Queen,  in  regard  of  the  great  abuse  of  them,  and  of  the  Cheat 
put  upon  her  Subjects  by  Reason  of  them,  might  utterly  suppress  them  and 
by  Consequence  without  Injury  done  to  any  one,  might  moderate  and  tol- 
erate them  at  her  Pleasure.  And  the  reason  of  the  Law  which  gives  the 
King  these  Prerogatives  in  Matters  of  Recreation  and  Pleasure  was,  because 
the  greatest  Part  of  Mankind  are  inclinable  to  exceed  in  them. 

As  to  the  first  it  was  argued  to  the  contrary  by  the  Defendant's 
Counsel  that  this  grant  was  void  for  two  reasons,  i.  That  it  is  a 
monopoly  and  against  the  Common  Law.  2.  That  it  is  against 
divers  acts  of  Parliament. 

It  is  against  Common  Law  for  four  reasons. 

1.  "  All  Trades,  as  well  Mechanical  as  others,  which  prevent  Idleness  (the 
Bane  of  the  Commonwealth)  and  exercise  Men  and  Youth  in  Labour,  for 
the  Maintenance  of  themselves  and  their  Families  and  for  the  Increase  of 
their  Substance  to  serve  the  Queen  when  Occasion  shall  require  as  profitable 
for  the  Commonwealth,"  therefore  the  grant  to  the  plaintiff  to  have  the  sole 
making  is  against  the  common  law  and  the  benefit  and  liberty  of  the  subject. 

Counsel  cites  "a  case  adjudged  in  this  court"  inter  Davenant  &  Hurdis 
(41  Eliz.),  —  which  case  was  "That  the  Company  of  Merchant  Taylors 
in  London,  having  power  by  charter  to  make  Ordinances  for  the  better 
Rule  and  Government  of  the  Company,  —  made  an  Ordinance  that  every 
Brother  of  the  same  Society,  who  should  put  any  Cloth  to  be  dressed  by 
any  clothesworker,  not  being  a  Brother  of  the  same  Society,  should  put 
one-half  his  cloths  to  some  Brother  of  the  same  Society,  who  exercised  the 
Art  of  clothesworker,  upon  Pain  of  forfeiting  ten  shillings,"  and  it  was 
adjudged  that  that  ordinance,  though  made  under  the  charter,  was  against 
the  Common  Law  because  against  the  liberty  of  the  subject,  as  every  man 
has  the  right  to  put  his  cloth  to  be  dressed  by  whatever  clothesmaker  he 
pleases,  and  can't  be  restrained  to  certain  persons,  as  that  in  effect  would 
be  a  monopoly. 

2.  "The  sole  Trade  of  any  Mechanical  Artifice  or  any  other  IMonopoly, 
is  not  only  a  Damage  and  Prejudice  to  those  who  exercise  the  same  Trade, 


CORPORATIONS  227 

but  also  to  all  other  Subjects,"  —  because  it  is  natural  that  three  bad 
things  will  happen,  to-wit,  (a)  the  price  will  be  raised,  (b)  the  commodity 
will  not  be  so  good,  (c)  it  will  tend  to  the  impoverishment  of  others  formerly 
in  the  same  trade,  but  now  prevented  from  exercising  it. 

3.  The  Queen  was  deceived  in  her  grant  for,  as  appears  from  the  preamble, 
it  was  intended  for  the  Weal  Publick,  and  will  be  employed  only  for  Private 
Gain. 

4.  It  is  a  dangerous  innovation,  "as  well  without  any  President  or  Ex- 
ample as  without  authority  of  Law  or  Reason."  It  is  for  twelve  years  to 
plaintiff  so  that  his  executors,  wife  or  children,  or  others  inexpert  in  the  art 
will  have  this  monopoly,  and  it  can't  be  intended  that  Edward  Darc3%  "a 
groom  of  the  Queen's  Privy  Chamber,  has  any  skill  in  this  ]\Iechanical 
Trade  of  making  of  Cards." 

While  playing  cards  is  a  vanity,  if  it  is  abused,  still  the  making  of  them 
is  neither  a  vanity  nor  a  pleasure,  but  labor  and  pains. 

It  was  resolved  that  the  Queen  could  not  suppress  the  making  of  cards 
within  the  realm  any  more  than  the  making  of  Dice,  Bowls,  Balls,  etc., 
which  are  works  of  labor  and  art,  although  they  serve  for  pleasure,  recrea- 
tion and  pastime  and  can't  be  suppressed  except  by  Parliament,  nor  a  man 
restrain  from  any  trade  except  by  Parliament. 

This  opinion  was  handed  down  in  1602,  when  Shakespeare  was 
superintending  the  first  production  of  the  Merry  Wives  of  Windsor 
and  incidentally  bupng  a  farm  near  Stratford  to  serve  as  a  country 
place  and  a  pastime.  It  would  be  interesting  to  know  whether  or  not 
he  regarded  the  result  of  the  case  as  a  threatening  victory  for  the 
guilds,^  the  trades  unions  of  his  time. 

A  short  time  afterward  Elizabeth  died,  and  in  1604  James  came 
into  power,  possessed  of  the  belief  in  the  absolute  divinity  of  Kings.^ 
At  first  he  was  not  bothered  in  this  belief,  but  in  1608  friction  between 
him  and  the  Commons  resulted  in  the  suppression  by  Parliament  of  a 
book  (by  Cowell)  which  declared  "the  King  is  above  the  law  by  his 
absolute  power,"  and  in  1610  he  made  a  proclamation  about  "Mo- 
nopolies." His  lavishness  drove  him  to  extremes,  however,  and  he 
again  granted  monopolies.  The  judges,  with  the  single  exception  of 
Coke  (characterized  by  Green,  III,  997,  as  "a  narrow-minded  and 
bitter  man,  but  of  the  highest  eminence  as  a  lawyer")  were  terrorized 

•  Guilds. 

For  an  interesting  enumeration  and  description  of  these  forerunners  of  trades  unions 
see  the  Hfe  of  Sir  Richard  Whittington  by  Besant  and  Rice  (Putnam's  Ed.  1881,  p.  70), 
which  shows  that  they  existed  even  before  the  Norman  Conquest,  and  were  very  powerful 
as  early  as  the  fourteenth  century.  In  the  reign  of  Edward  III  we  find  the  first  threat  of 
"department  stores"  in  the  plan  of  the  Company  of  Grossers,  a  fraternity  of  wholesale 
merchants  who  proposed  to  sell  everything  themselves  instead  of  through  retail  dealers. 
This  was  stopped  by  a  command  of  the  King,  that  each  should  confine  himself  to  one  craft, 
or  "mystery."     In  the  year  1355  the  following  companies  are  listed: 

Brasiers,  Sporiers,  Tanners,  Butchers,  Grossers,  Poulterers,  Curriers,  Bowycrs,  Iron- 
mongers, Chandlers,  Pewtercrs,  Tailors,  Wax-Chandlers,  Pouchmakers,  Skinners,  Leather- 
Dressers,  Salters,  Cutlers,  Fishmongers,  Mercers,  Girdlers,  Cappers,  Brewers,  Vintners, 
Prossers  in  the  Ropery,  Glovers,  ,\rmourers,  Goldsmiths,  Drapers. 

^  Green,  Short  ilistory  of  the  English  People,  Vol.  Ill,  p.  976. 


228  CORPORATIONS 

by  the  crown,  and  no  attempt  was  made  to  invoke  the  law  to  abridge 
the  crown.  Coke,  who  is  here  found  on  the  side  of  the  question  next 
his  heart,  was  dismissed  from  office  because  he  failed  to  yield  to  the 
King's  pleasure,  and  became  a  leader  of  the  opposition.  Green  says 
"The  most  crying  constitutional  grievance  arose  from  the  revival  of 
monopolies,  in  spite  of  the  pledge  of  Elizabeth  to  suppress  them."  ^ 

In  1610  the  business  which  chiefly  occupied  the  commons  during 
their  session  was  the  abolition  of  wardships  and  purveyance  —  pre- 
rogatives which  had  been,  more  or  less,  touched  on  every  session 
during  the  whole  reign  of  James.^  This  time  the  Commons  offered 
the  King  a  settled  revenue  for  the  powers  he  was  to  forego.  He 
wanted  200,000  pounds  a  year,  which  they  agreed  to  confer  upon  him. 
They  didn't  raise  the  funds,  however  —  why  is  unknown,  as  the 
journals  of  this  session  are  lost. 

To  quote  again  from  Macaulay : ' 

The  discontents  which  Elizabethan  wisdom  had  appeased  were  reN^'ived 
by  the  dishonest  and  pusillanimous  policy  which  her  successor  called  King- 
craft. He  readily  granted  oppressive  patents  of  monopoly.  When  he 
needed  the  help  of  his  Parliament  he  as  readily  annulled  them.  At  length 
the  excellent  House  of  Commons  which  met  in  1623  determined  to  apply  a 
strong  remedy  to  the  evil.  The  King  was  forced  to  give  assent  to  a  law 
which  declared  monopolies  established  by  royal  authority  to  be  null  and  void. 
Some  exceptions  were  made  and  unfortunately  were  not  clearly  defined. 
It  was  especially  provided  that  every  Society  of  Merchants  which  had  been 
instituted  for  the  purpose  of  carrying  on  trade  should  retain  aU  its  legal 
privileges.  The  question  whether  a  monopoly  granted  to  such  a  company 
were  or  were  not  a  legal  privilege  was  left  unsettled  and  continued  to  exer- 
cise the  ingenuity  of  lawyers. "' 

While  the  Parliaments  were  enacting  statutes  the  courts  do  not 
seem  to  have  questioned  the  doctrine  of  Darcy  vs.  Allein  for  some 
time  after.     The  abuse  attacked  in  that  case  raised  its  head  again,^ 

1  III  Short  History,  1008. 

2  III  Hunie,  p.  269. 

3  History  of  England,  Vol.  IV,  p.  103. 

*  Of  these  companies  the  most  important  was  that  incorporated  on  the  last  day  of  the 
sixteenth  century  under  title  of  "Company  of  Merchants  of  London  trading  to  the  East 
Indies." 

In  1 68 1  five  persons  had  a  sixth  and  fourteen  persons  a  third  of  the  votes  in  that  com- 
pany. Stock  was  up  to  500  pounds.  One  man,  Sir  Josiah  Child,  had  20,000  pounds  per 
annum,  an  amount  with  a  huge  purchasing  power  as  compared  with  like  figures  to-day. 
Child  became  a  great  favorite  at  court,  was  "governor"  of  the  company  and  gave  presents 
of  10,000  pounds  each  to  Charles  II  and  James.  He  was  a  judicious  administrator,  and 
had  his  connections  with  the  court  well  established,  but  the  revolution  spoiled  his  plans. 
The  Commons  censured  some  of  his  acts  in  1690  (2  W.  &  M.)  and  referred  future  relations 
to  a  committee. 

'  On  July  20th,  1620,  the  King  gave  a  patent  to  Sir  Thomas  Roe  and  partners  for  the  sole 
sealing,  importing,  engrossing  and  sale  of  tobacco.  This  was  complained  against  by  the 
Virginia  Company.  Also  the  King  attempted  to  give  a  monopoly  of  Virginia  coast  fishing 
to  Sir  F.  Joyes,  but  was  prevented  by  the  Privy  Council,  after  a  hearing.  See  Brown, 
The  First  Republic  in  America,  p.  386,  et  seq. 


CORPORATIONS  229 

as  Macaiilay  notes,  and  grew  so  bold  that  in  1723  a  law  was  passed 
(found  in  Cap.  Ill,  21  Jac.)-  This  law  was  probably  framed  by  Coke, 
who  was  then  out  of  favor  with  the  crown  and  had  become  one  of  the 
leaders  of  the  Commons.  One  can't  help  wondering  whether  he 
would  then  have  repeated  the  inscription  on  the  fly-leaf  of  his  reports 
published  in  the  thirteenth  year  of  James,  whom  he  styles  "the  Foun- 
tain of  all  Piety  and  Justice  and  the  Life  of  the  Law."  Of  this  act 
the  preamble  is  so  firm  in  tone,  although  moderate  in  expression, 
that  it  deserves  a  moment.  It  reads  thus :  "  Forasmuch  as  your  most 
excellent  Majesty,  in  your  royal  judgment,  and  of  your  blessed  dis- 
position to  the  weal  and  quiet  of  your  subjects,  did  in  the  year  of  our 
Lord  God  16 10  publish  in  print  to  the  whole  realm,  and  to  all  pos- 
terity. That  all  grants  and  monopoHes  .  .  .  are  contrary  to  your 
Majesty's  laws,  which  your  Majesty's  declaration  is  truly  conso- 
nant and  agreeable  to  the  ancient  and  fundamental  laws  of  this  your 
realm :  And  whereas  your  Majesty  was  graciously  pleased  expressly 
to  command  that  no  suitor  should  presume  to  move  your  Majesty 
for  matters  of  that  nature ;  yet  nevertheless  upon  misinforma- 
tions, and  untrue  pretences  of  publick  good  many  such  grants  have 
been  unduly  obtained,  and  unlawfully  put  in  execution,  to  the  great 
grievance  and  inconvenience  of  your  Majesty's  subjects  contrary 
to  the  laws  of  this  your  realm,  and  contrary  to  your  Majesty's 
most  royal  and  blessed  intention  so  published  as  aforesaid."  For 
avoiding  whereof  "be  it  enacted  that  all  monopolies  are  altogether 
contrary  to  the  laws  of  this  realm  and  are  and  shall  be  void  and  of 
no  effect." 

This  act  further  provides  that  all  such  monopolies  shall  be  tried 
and  determined  according  to  the  common  laws  of  the  realm,  and  not 
otherwise,  and  gives  treble  damages  to  any  party  aggrieved.  Of 
course  patents  for  new  inventions  are  saved  from  the  operation  of  the 
act. 

For  some  time  after  the  enactment  of  this  statute  of  James  in  1623 
the  times  were  so  troublous  that  little  attention  was  paid  to  the 
validity  or  frailty  of  monopolistic  grants  by  the  courts.  Charles  I, 
Cromwell  and  the  Common\vealth,  and  Charles  II  kept  the  public 
mind  agitated  on  the  cjuestions  of  succession  and  with  civil  war. 
There  were  at  least  two  cases  brought  involving  the  validity  of  charters 
to  merchant  companies,  but  neither  seems  to  have  been  decided  in 
definite  form. 

One  of  these  was  an  action  of  trespass  and  was  brought  in  King's 
Bench  (in  the  case  of  Home  vs.  Ivy,  21  Car.  II,  1669)  ^  for  taking 
away  a  ship.  The  defendant  justified  under  the  " Canary  Company" 
patent,  providing  that  none  but  such  and  such  trade  thither  and 
claiming  he  acted  under  authority  from  the  patentees,  and  seized  the 

I  I  Modern,  p.  i8. 


230 


CORPORATIONS 


ship  as  it  was  unlawfully  trading.^  Serjeant  Pollexfen,  for  the  plaintiff 
in  trespass,  argued  that  the  patent  was  void  because  it  undertook  to 
give  forfeiture  of  goods  and  imprisonment,  which  cannot  be  by  patent. 
The  court  said  it  desired  to  be  satisfied  whether  this  was  a  monopoly 
or  not,  and  ordered  it  to  be  argued  —  no  note  of  the  decision  or  the 
argument  is  made  in  the  report. 

In  the  case  of  the  Company  of  Merchants  Adventurers  vs.  Rebow,^ 
the  question  is  raised  as  to  the  validity  of  the  patent  given  by  Eliza- 
beth to  the  plaintiff  organization.  The  defendant  is  accused,  in  an 
action  on  the  case,  of  trading  in  prohibited  places,  —  that  is,  pro- 
hibited to  all  except  the  select  company.  Mr.  Pollexfen  contended 
that  the  patent  was  clearly  void,  —  "all  engrossing  and  monopolizing 
are  void  for  the  common  law,  the  one  is  a  species  of  the  other."  He 
makes  the  rather  humorous  statement  that  the  East  India  case  (which 
apparently  had  been  argued  in  the  lower  courts)  is  not  like  this  be- 
cause that  grant  prohibited  trading  with  infidels  while  this  (at  bar) 
restrains  trading  with  Christians  in  Holland,  Zealand,  etc.,  etc.  The 
reporter  does  not  chronicle  the  decision. 

With  William  and  Mary  came  national  quiet,  and  again  we  find  a 
disposition  to  deal  firmly  with  the  monopoly  question. 

This  time  it  comes  up  in  new  guise.  Under  a  statute,  an  action 
on  the  case  was  brought  in  admiralty,^  one  Sands  vs.  Sir  Josiah  Child, 
Franklin  and  Leach,  to  recover  damages  because  the  plaintiff  was  not 
permitted  to  go  from  the  Port  of  London  on  December  13,  with  the 
ship  called  "The  Commerce  of  London,"  being  in  his  possession, 
"  loaden  with  merchandizes  partly  his  own,  partly  of  divers  other 
merchants  "  to  trade  for  them,  he  to  have  a  fifth  part  of  the  profits. 
On  that  13th  day  of  December,  1683,  the  defendants  prosecuted  a 
suit  in  the  Admiralty  for  the  stay  of  the  ship,  until  security  should 
be  given  that  it  should  not  go  to  "  trade  with  infidels  "  within  the  limits 
of  the  charter  of  the  East  India  Company ;  by  this  suit  the  ship  was 
detained  sixteen  months,  so  that  plaintiff  lost  the  profits  of  his  voyage. 
For  this  loss  plaintiff  sues  here.  The  plea  w^as  not  guilty  (it  was  a 
qui  tam  action) ;  on  the  trial  one  of  the  defendants  (Franklin)  was 
found  not  guilty,  but  as  to  Sir  Josiah  Child  and  Leach  a  special  ver- 
dict was  returned  to  the  effect  that  they  acted  under  the  charter  of 
the  East  India  Company  which  gave  this  company  the  sole  right  to 
trade  with  iniidels  in  the  East  Indies,  under  penalty  of  the  forfeiture 
of  ship  and  goods,  —  that  the  plaintiff  and  others  had  fitted  out  the 
ship  for  the  purpose  of  so  trading,  —  that  Child,  governor  of  the  com- 
pany, and  Leach,  its  solicitors,  petitioned  the  King  in  council  for  a 

1  The  Dutch  found  the  monopolies  granted  the  West  India  Company  were  stifling  their 
colonies,  so  in  1638  all  the  most  important  ones  in  New  Netherlands  were  abohshed.  See 
Fiske,  Dutch  and  Quaker  Colonies,  Vol.  I,  p.  170. 

2  3  Jac.  II,  1687;  3  Modern,  131. 
?3  Levinz,  352. 


CORPORATIONS  231 

stay  of  the  ship  and  an  order  in  admiralty  issued  for  such  a  stay,  and 
admiralty  process  followed  in  course,  staying  the  vessel  and  losing 
the  voyage.  The  verdict  further  found  "if  guilty,  damages  for  the 
plaintiff  in  duplo  1500  pounds  and  costs."  Judgment  was  rendered 
for  the  plaintiff  —  defendants  bring  error.  It  was  argued  among 
other  things,  that  this  was  no  monopoly  but  only  a  "  prohibition  to 
traffick  with  Infidels,  which  the  King  may  well  do,  they  being  per- 
petual enemies."  To  this  it  was  replied  that  the  King  has  power  to 
grant  embargoes  in  time  of  danger,  but  this  was  not  such  a  case,  but 
only  an  attempt  to  prevent  trade  within  the  limits  of  the  East  India 
Company  grant.  Further,  "  royalty  should  not  interfere  because  there 
was  a  remedy  in  the  courts  —  further  as  to  prohibiting  traffic  with 
infidels  if  no  commerce  should  be  held  with  them  they  will  never  be 
converted,  and  it  is  a  disparagement  to  the  Christian  Religion  to 
think  they  should  rather  be  converted  by  infidels  than  that  infidels 
should  be  converted  by  them,  which  argument  is  only  a  pretence 
anyway,  for  the  restraint  is  only  as  to  infidels  within  the  limits  of  the 
East  India  Company."  The  reporter  adds  that  there  was  not  much 
doubt  upon  any  of  the  matters  moved  except  whether  this  was  properly 
brought  in  admiralty.  Lord  Holt  first  queried  as  to  the  jurisdiction, 
but  afterwards  concluded  the  action  was  properly  brought.  We  may 
note  that  the  change  of  administration  militated  against  Childs  and 
his  company  and  undoubtedly  affected  the  decision.  This  ship  was 
stopped  under  Charles  II  —  the  action  or  damages  for  the  stopping 
was  decided  in  the  fifth  year  of  William  and  Mary. 

The  next  case  of  any  particular  import  on  the  question  of  monopo- 
lies was  heard  in  1712,^  where  a  point  of  law  was  submitted  to  the 
King's  Bench  by  the  court  of  chancery,  — -  "Whether  the  grant  of  the 
crown,  to  the  company  of  Stationers  to  have  the  sole  printing  of 
'almanacks,'  provided  they  were  licensed  by  the  Archbishop  of  Can- 
terbury and  the  Bishop  of  London,  were  a  good  grant ;  or  void, 
because  against  the  liberty  of  the  subjects."  ^  Against  the  patent  it 
was  argued  that  printing  was  a  handicraft  trade  and  no  more  to  be 
restrained  than  other  trades. 

For  the  patent  it  was  argued  that  the  crown  had  a  peculiar  interest 
in  a  book  of  common  prayer  and  consequently  in  the  calendar,  which 
is  part  of  it.  Further  that  printing  was  an  art  introduced  by  the 
crown,  and  therefore  subject  to  a  special  property.  Also  printing  is 
always  an  exception  and  subject  to  kingly  regulation  because  of  the 
inconvenience  to  the  public  through  any  mismanagement  of  the 
printing  press.     The  Court  reserved  its  decision. 

'  10  Modern,  105. 

2  See  Birrell,  Law  and  History  of  Copyright,  p.  55:  The  "King's  Books,"  the  printing 
of  which  he  controlled,  included  (a)  Acts  of  Parliament  and  their  abridgments;  {b)  All 
books  of  rites  and  services  of  the  resettled  Church  of  England  ;  (c)  Bibles  and  Testaments; 
(d)  Law  Books  and  Year  Books;  (c)  Almanacks;  (/)  Ed.  works,  Latin  grammars.  The 
first  appointment  of  King's  printer  was  in  1547,  by  Edward  V'L 


232  CORPORATIONS 

n 

From  the  foregoing  we  have  noted  some  of  the  general  causes  lead- 
ing up  to  the  case  of  the  monopolies,  and  the  ebb  and  flow  thereafter 
of  public  and  judicial  opinion  relating  to  men's  attempts  in  England 
to  get  the  sole  control  of  one  or  another  product  or  trade.  This  case 
stands  as  the  first  strong  and  fearless  statement  by  the  courts  of  the 
law  as  men  had  long  felt  it  ought  to  be.  Parhament  had  enacted 
statutes  before  the  controversy  of  Allein  and  Darcy,  but  the  enact- 
ments had  been  dead  letters.  Not  until  the  court  gave  its  opinion  in 
this  case  did  the  people  feel  that  laws  of  restriction  might  be  effective. 

To  this  decision,  then,  we  may  rightly  look  as  the  cause  of  James' 
unwilling  law  against  monopolies,  a  great  step  forward  in  popular 
rights,  —  to  it  must  be  attributed,  too,  the  abrogation  of  the  charters 
of  the  East  India  Company  and  the  Canary  Company,  and  the  modi- 
fication of  the  law  as  to  engrossing,  forestalling,  and '  corners '  generally.^ 

We  come  to  the  beginning  of  the  nineteenth  century,  therefore, 
with  the  rule  pretty  well  fixed  that  monopolies  are  unlawfvd,  and  that 
corners  are  reprehensible  but  not  necessarily  illegal. 

The  statutes  against  the  latter  have  been  repealed  by  the  law 
passed  in  1772  (12  George  III,  Cap.  7),  but  the  set  of  the  courts  is 
against  extremes. ^ 

The  first  year  of  the  new  century  (a.d.  1800)  brings  an  interesting 
development  of  the  underlying  idea  in  the  case  of  King  vs.  Wadding- 
ton.^  This  was  a  criminal  action  on  an  information  charging  the 
defendant  with  two  offenses,  —  ist,  buying  up  large  quantities  of 
hops  with  the  intention  of  reselling  them  at  unreasonable  profit,  — 
'2d,  spreading  rumors  of  the  scarcity  of  hops  with  the  purpose  of 
causing  others  owning  hops  to  withhold  them  from  the  market  and  of 
enhancing  the  price  by  such  tactics. 

One  of  the  defenses  urged  was  that  no  offense  had  been  committed 
because  hops  are  not  'a  victual,'  hence  not  subject  to  engrossing  — 
the  reply  was  that  this  had  been  settled  by  9  x\nne,  c.  12,  s.  24,  which 
made  hops  a  necessary  ingredient  of  beer,  and  therefore  a  victual. 

1  Engrossing :  Purchasing  large  quantities  of  a  commodity  in  order  to  command  the 
market  and  sell  at  high  prices. 

Forestalling  :  Bujing  victuals  on  their  way  to  market  (before  they  reach  it)  so  as  to  sell 
again  at  higher  prices. 

Regrating :   Enhancing,  or  seeking  to  enhance,  price  of  victuals  by  any  means. 

2  So  far  as  one  may  judge  from  reading  the  statutes,  it  seems  that  the  fear  of  monopoly 
of  one  kind  or  another  was  often  present.  In  1552  we  have  the  act  against  engrossers  (5th 
and  6th,  Edward  VI)  :  in  1623  the  law  against  monopolies  as  finally  forced  upon  James  I ; 
in  1778  (28  George  III,  Cap.  53,  Sec.  2),  a  statute  providing  that  a  combination  of  five  or 
more  for  the  purpose  of  purchasing  and  selling  coals  shaU  be  unlawful  and  punishable  by 
indictment.  But  in  1772  (12  George  III,  Cap.  70)  it  was  found  that  some  of  the  dreaded 
monsters  were  not  formidable,  and  the  statute  law  was  modified  by  an  attempted  repeal  of 
the  sth  and  6th  Edward  VI. 

'  I  East,  143. 


CORPORATIONS  233 

Lord  Kenyon  in  a  long  and  interesting  opinion  holds  that  the  defend- 
ant had  committed  an  offense  at  common  law,  —  the  repeal  of  the 
statutes  not  having  affected  the  common  law  as  bearing  on  this  sub- 
ject, —  and  the  defendant  was  sentenced  to  pay  a  fine  of  500  pounds 
and  be  imprisoned  one  month.  On  an  indictment  he  was  also  ad- 
judged guilty  and  mulcted  another  500  pounds,  and  sentenced  to  three 
months  additional.  This  is  not  a  bad  precedent  for  us  to  follow  in 
deahng  with  the  authors  of  some  roorbacks  to-day. 

With  the  improved  method  of  communication,  however  (due  to 
steam  and  to  the  growth  of  population),  it  soon  became  apparent  that 
larger  combinations  of  effort  would  be  necessary.  Larger  undertak- 
ings came  —  among  them  the  first  gas  company,  organized  in  Lon- 
don 1 8 10  —  and  no  one  man  could  provide  financial  means;  it  was 
also  plain  that  some  of  the  narrowing  results  of  the  older  laws  and 
decisions  were  obsolete.  Hence  we  soon  find  a  modification,  by  the 
courts,  of  the  harsher  rules. 

In  1825,  Chief  Justice  Best  held,  in  Homer  vs.  Ashford,^  that  an 
agreement  was  good  that  prevented  an  employer  from  embarking  for 
himself  and  soliciting  patronage  in  certain  districts,  although  it  would 
have  been  bad  if  applied  to  the  whole  kingdom. 

In  1844,  came  the  act  of  Victoria  doing  away  with  all  offenses  of 
forestalling,  engrossing  and  regrating. 

In  1889,  the  climax  was  capped  by  the  decision  in  the  case  of  Mogul 
Steamship  Company  vs.  McGregor  et  al.^  This  was  an  action  for 
damages  because  of  a  conspiracy  to  prevent  plaintiffs  from  carrying 
on  trade  between  London  and  China.  Plaintiffs  were  shipowners 
and  defendants  were  a  body  of  other  shipowners  who  had  associated 
themselves  for  the  purpose  of  keeping  up  freight  rates  in  the  tea  trade 
between  China  and  Europe,  and  securing  that  trade  to  themselves  by 
allowing  a  rebate  of  five  per  cent  on  all  freights  paid  by  shippers  who 
shipped  tea  in  the  association  vessels.  To  get  this  rebate  shippers 
were  required  to  sign  a  declaration  that  they  have  not  made  nor  been 
interested  in  shipments  by  others  than  lines  associated.  Defendants 
sent  a  circular  to  merchants  in  the  China  trade  saying  that  shipments 
by  certain  specified  steamers  owned  by  the  plaintiffs,  and  other  non- 
associated  boats  would  bar  the  shippers  from  association  rebates  for 
six  months. 

It  further  seems  that  the  defendants  agreed  to  send  steamers  to 
underbid  any  independents  who  made  stray  trips  to  get  cargoes,  with 
the  immediate  object  of  driving  these  independent  and  non-associated 
competitors  out  of  business.  Plaintiffs  did  send  to  Hankow  to  contract 
for  business,  and  defendants  ran  the  freights  down  to  twenty-five  pounds 
whereas  the  normal  rate  was  fifty  pounds  or  more.  Plaintiffs  sued  for 
the  consequent  damage.     In  the  lower  court  Lord  Coleridge  found 

I  3  BiiiKham  327.  2  23  Q.  B.  D.  598. 


234  CORPORATIONS 

for  the  defendants.^  The  citation  here  is  the  appealed  case.  Lord 
Esher  (M.  R.)  thought  the  plaintiffs  entitled  to  recover,  but  was  over- 
ruled by  Justices  Bowen  and  Fry,  who  held  for  the  defendants.  The 
opinion  of  Justice  Bowen  is  often  quoted ;  he  holds  broadly  that  one 
man  has  a  full  right  to  compete  with  another  in  trade,  —  that  what 
is  right  for  one  man  to  do  cannot  be  wrong  for  an  association  of  men, 
and  that  there  is  therefore  no  conspiracy  here.  This  decision  is 
against  the  whole  spirit  of  the  English  law,  as  it  encourages  the  con- 
centration of  power  and  sole  control.  In  this  country  we  can  hardly 
follow  it  in  its  reasoning.  It  suggests  a  radical  departure  from  the 
underlying  doctrine  of  the  case  of  the  Monopolies,  —  but  it  seems 
that  the  court  was  misled  and  that  the  decision  will  hardly  take  a 
permanent  place  as  an  authority.  The  case  of  Nordenfelt  vs.  Maxim 
Nordenfelt  Guns  &  Ammunition  Co.,^  is  often  cited  as  upholding  the 
same  rule,  but  it  is  not  based  on  the  same  principle  nor  do  others 
since  go  the  full  length  of  the  Mogul  Co.  case. 

Ill 

The  early  days  of  the  United  States  were  too  full  of  struggle  to 
invite  much  litigation  bearing  on  monopolies,  or  much  discovered 
attempt  to  establish  any. 

It  is  true  we  find  that  some  of  the  States  in  the  earlier  half  of  the 
last  century  adopted  constitutions  with  clauses  forbidding  all  monopo- 
listic combinations,  but  it  is  only  within  the  last  twenty-five  years 
that  popular  feeling  on  this  continent  has  been  gradually  arousing. 
This  is  shown  by  the  laws  which  have  been  enacted  by  the  legislatures 
during  that  period  and  the  constitutions  more  recently  adopted. 
These  statutory  and  constitutional  provisions  have  been  enacted  inde- 
pendently and  with  reference  to  local  conditions,  and  it  may  be  in- 
teresting for  a  few  moments  to  run  over  some  of  them. 

The  constitution  of  Arkansas  (adopted  in  1874)  provides  that. 
Article  II,  Section  2,  "perpetuities  and  monopolies  are  contrary  to  the 
genius  of  a  republic,  and  shall  not  be  allowed." 

In  the  case  of  Ex-parte  Levy,^  which  arose  under  this  provision, 
Judge  Eakin  in  his  opinion  goes  back  to  the  time  of  Elizabeth  for  the 
root  of  the  evil  and  says,  "The  monopolies  which  in  England  became 
so  odious  as  to  excite  general  opposition  and  infuse  a  detestation 
which  has  been  transmitted  to  the  free  states  of  America,  were  in  the 
nature  of  exclusive  privileges  of  trade  granted  to  favorites  or  pur- 
chasers from  the  crown,  for  the  enrichment  of  individuals,  at  the  cost 

1  Lord  Coleridge  found  that  the  combination  came  within  the  limit  of  "reasonable  and 
legitimate  selfishness."  His  opinion  is  commended  for  its  English.  See  Life  of  Lord  Cole- 
ridge, Vol.  II,  p.  358. 

2  Decided  i8g4,  App.  Cases  535. 
343  Ark.  42. 


CORPORATIONS  235 

of  the  public.  The  memory  and  historical  traditions  of  abuses  result- 
ing from  this  practice,  have  left  the  impression  that  they  are  dangerous 
to  liberty,  and  it  is  this  kind  of  monopoly  against  which  the  constitu- 
tional provision  is  directed." 

In  California  the  constitution  (Article  I,  Section  21)  provides:  No 
special  privileges  or  immunities  shall  ever  be  granted  which  may  not  be 
altered,  revoked  or  repealed  by  the  legislature,  nor  shall  any  citizen,  or 
class  of  citizens,  be  granted  privileges,  or  immunities  which,  upon  the  same 
terms,  shall  not  be  granted  to  all  citizens. 

In  Connecticut,  which  was  one  of  the  most  progressive  and  hard- 
headed  of  our  early  states,  there  is  no  constitutional  limitation  but  it 
was  held  (in  the  case  of  Norwich  Gas  Light  Co.  vs.  Norwich  City  Gas 
Co.^)  that  "The  statute  of  21  James  I,  c  3,  which  declares  monopolies 
void,  is  merely  declaratory  of  the  common  law."  And  further  "A 
legislative  grant  of  a  monopoly  would  be  void  as  being  contrary  to  the 
theory  of  free  government,  therefore  the  legislature  cannot  grant  to 
any  private  corporation  the  exclusive  right  to  lay  down  gas  pipes  in 
the  city."  2 

In  Georgia  there  is  this  constitutional  pro\dsion,  Article  IV,  Section 
2,  Par.  4, 

The  general  assembly  of  this  state  shall  have  no  power  to  authorize  any 
corporation  to  buy  shares  of  stock  in  any  other  corporation  in  this  state 
or  elsewhere,  or  to  make  any  contract  or  agreement  whatever,  with  any 
such  corporation  which  may  have  the  effect,  or  be  intended  to  have  the  ef- 
fect, to  defeat  or  lessen  competition  in  their  respective  businesses,  or  to  en- 
courage monopoly ;  and  all  such  contracts  and  agreements  shall  be  illegal 
and  void. 

The  Organic  Act  of  Hawaii  (adopted  April  30,  1900,  2  Supp.  R.  S. 
1 141)  says  at  Sect.  55  : 

The  legislature  shall  not  grant  to  any  corporation,  association  or  indi^^d- 
ual  any  special  or  exclusive  privilege,  immunity  or  franchise  without  the 
approval  of  Congress. 

In  Indiana  a  statute  of  1901  (Sect.  3312  G.  et.  seq.)  forbids  any 
arrangement  between  persons  or  corporations  to  lessen,  or  tend  to 
lessen  competition  in  trade,  or  to  tend  to  control  the  price  of  any 
article,  making  such  arrangement  void  and  forfeiting  the  charter  of 
any  corporation  found  guilty  of  being  a  party. 

In  Kansas  the  General  Statutes  of  1901,  Sect.  2443,  provide: 

*  25  Conn.  38. 

2  It  is  instructive  that  Connecticut  has  found  it  expedient  to  temper  this  rule.  Judge 
Pardee,  in  the  case  of  the  Citizens  Co.  vs.  Bridgeport  Co.,  55  Conn.  16,  states,  "it  is  the  duty 
of  courts  to  preserve  contracts  inviolate  rather  than  to  destroy  monopolies." 

See  also  the  opinion  of  Baldwin,  J.,  in  State  vs.  Orr,  68  Conn.  loi. 


236  CORPORATIONS 

Every  person,  servant,  agent  or  employee,  or  any  firm  or  corporation 
doing  business  within  the  State  of  Kansas  that  shall  conspire  or  combine 
for  the  purpose  of  monopolizing  any  line  of  business,  or  for  the  purpose  of 
preventing  the  produce  of  grain,  seeds,  live  stock  or  hay  from  shipping  or 
marketing  the  same  without  the  agency  of  any  third  person,  firm  or  corpora- 
tion, shall  be  deemed  guilty  of  a  misdemeanor,  and  fined  not  less  than 
$1000,  and  not  to  exceed  S5000,  for  each  offense. 

Michigan  boasts  of  a  complete  law  passed  in  1899  (Act  1255)  and 
amended  in  1905  by  a  supplementary  act  (Act  329,  p.  507).  The 
first  act  is  entitled  "An  Act  to  prevent  trusts,  monopolies  and  com- 
bination of  capital." 

The  later  is  "An  Act  relative  to  agreements,  contracts  and  com- 
binations in  restraint  of  trade  or  commerce." 

The  earlier  law  while  complete,  is  on  conventional  lines.  The  later 
act  attempts  to  reach  further,  stating  that  promising  not  to  engage  in 
business  is  unlawful,  and  that  all  combinations  made  with  the  purpose 
of  establishing  a  monopoly  of  any  kind  are  declared  to  be  against 
public  policy  and  illegal  and  void. 

Minnesota  passed  a  law  in  1893  to  this  effect :  (Sect.  6955,  of  Second 
Minn.  Stat.)  "Any  party  to  a  pool,  trust,  agreement,  combination 
or  confederation  to  regulate  price  or  output  of  any  article,  is  guilty 
of  a  conspiracy,  and  subject  to  a  fine  of  from  $100  to  $1000,  and  im- 
prisonment from  one  to  ten  years. 

In  Montana,  Sect.  321,  Title  VII,  Cap.  8,  Annotated  Code,  reads : 

Any  one  combining  or  making  a  contract  with  the  purpose  of  creating 
a  monopoly  in  the  manufacture,  sale  or  transportation  of  any  article,  is 
punishable  by  imprisonment  not  exceeding  five  years,  or  fine  not  exceeding 
$1000.  -    "'^ 

Any  corporation  which  is  found  guilty  of  this  offense  forfeits  all  of 
its  property  within  the  state,  as  well  as  its  franchise. 

New  York  in  its  Stock  Corporation  Law  of  1892  (Revised  Stat.  p. 
1008),  provides: 

Sect.  7.  No  stock  corporation  shall  combine  with  any  other  corporation 
or  person  for  the  creation  of  a  monopoly  or  the  unlawful  restraint  of  trade, 
or  for  the  prevention  of  competition  in  any  necessary  of  life. 

Again,  by  a  statute  entitled  —  "An  Act  to  prevent  monopolies  in 
articles  of  general  necessity,"  there  is  this  restriction  (Laws  of  1893, 
Chapter  716),  that  "  Every  contract  or  combination  in  the  form  of  a 
trust  or  otherwise  .  .  .  whereby  competition  in  the  State  of  New 
York  in  the  supply  or  price  of  an  article  or  commodity  of  common 
use  for  the  support  of  life  and  health,  may  be  restrained  or  prevented 
for  the  purpose  of  advancing  prices,  is  hereby  declared  illegal." 

In  North  Carolina,  according  to  the  revised  code  of  1905,  there 


CORPORATIONS  237 

seems  to  be  simply  this  provision  (Sect.  3739),  "If  any  person  in  any 
way  violates  any  of  the  provisions  of  the  law  against  trusts  and  mo- 
nopolies, he  shall  be  guilty  of  a  misdemeanor,"  and  fined  or  imprisoned. 

North  Dakota  (Chapter  53,  Revised  Code  of  1905),  possesses  the 
most  complete  act  that  has  come  to  the  writer's  notice  covering  this 
subject.  The  skeleton  act  was  passed  in  1890  but  changed  much  in 
1905.  By  it  the  Attorney-General  is  required  of  his  own  motion,  to 
take  proceedings  whenever  his  attention  is  called  to  the  violation  of  a 
law,  and  another  provision  makes  it  incumbent  upon  every  corporation 
to  file  an  affidavit  each  year  showing  it  is  not  a  member  of  a  trust,  pool 
or  combination. 

Ohio  defines  a  trust  (Chapter  19  a,  Revised  Stat.  Act  of  1898)  as  a 
"combination  of  capital,  skill  or  acts  by  two  or  more  .  .  .  to  carry 
out  restraints  in  trade,  or  to  limit  or  increase  the  production,  or  to 
prevent  competition  in  manufacture  and  sale." 

In  Oklahoma  (Sect.  6739,  Annotated  Statutes  of  1903),  by  a  law 
passed  in  1890,  trusts  and  combinations  were  put  under  the  ban.  We 
find  an  unusual  element  in  the  act,  which  includes  a  combination  to 
fix  the  rate  of  interest  as  a  monopolistic  offense. 

South  Carolina  (by  Sect.  212  of  the  Criminal  Code  of  1902)  makes 
a  combination  of  this  character  a  conspiracy  against  trade,  and  fixes 
the  punishment  at  a  fine  of  from  $100  to  $5000,  with  imprisonment 
for  not  less  than  six  months  nor  more  than  ten  years. 

Texas  by  its  constitution  (Article  I,  Section  6),  decrees,  "Perpetuities 
and  monopolies  are  contrary  to  the  genius  of  a  free  government  and 
shall  not  be  allowed." 

The  Virginia  constitution  of  1902  says  (Section  165),  "The  General 
Assembly  shall  enact  laws  preventing  all  trusts,  combinations  and 
monopolies,  inimical  to  the  public  welfare." 

Wyoming  by  the  constitution  of  1889  followed  the  old  track,  say- 
ing (Article  I,  Section  30),  —  "Perpetuities  and  monopolies  are  contrary 
to  the  genius  of  a  free  state  and  shall  not  be  allowed." 

Congress  by  its  enactment  of  the  anti-trust  law  on  July  2,  1890, 
fell  in  line  with  the  general  sentiment.  This  law  is  entitled,  "An  Act 
to  Protect  Trade  Against  All  Unlawful  Restraints  and  Monopolies."  ^ 

This  provides  that  every  contract  in  restraint  of  trade  or  commerce 
among  the  several  states,  or  with  foreign  nations,  is  declared  to  be 
illegal,  and  that  every  person  who  shall  monopolize,  or  attempt  to 
monopolize  any  part  of  the  trade  or  commerce  among  the  several 
states,  or  wdth  foreign  nations,  shall  be  guilty  of  a  misdemeanor, 
punishable  by  a  fine  not  exceeding  S5000,  or  imprisonment  not  exceed- 
ing one  year. 

While  examining  this  law  we  may  note  that  it  seems  the  irony  of  fate 
that  the  next  chapter  in  the  statute  book  legalizes  the  incorporation 

*  See  3  U.S.  Compiled  Stat,  igoi,  p.  3200. 


238  CORPORATIONS 

of  national  trades  unions,  which  some  beUeve  to  be  the  extremest  form 
of  trusts. 

From  the  foregoing  laws,  whether  in  the  shape  of  constitutions  or 
statutes,  we  may  conclude  that  a  wave  of  popular  feeling  in  this 
country  is  rapidly  reaching  the  height  which  in  England  in  1602 
resulted  in  the  decision  of  the  Case  of  the  Monopolies.  Sometimes 
our  court  decisions  have  followed  the  popular  will  as  shown  in  the 
laws;  sometimes  they  have  helped  to  form  public  opinion,  which 
resulted  in  the  later  enactment  of  statutes.  It  would  be  far  beyond 
the  scope  of  this  paper  to  mention  all  the  cases  incidental  to  the  sub- 
ject. It  is  amusing,  however,  and  instructive  to  examine  some  of  the 
attacks  which  have  been  made  under  these  anti-trust  laws,  and  to 
note  that  the  chain  of  authorities  almost  invariably  leads  back  to 
the  notable  case  of  Darcy  vs.  Allein.  Among  them  we  may  mention 
these : 

People  of  the  State  of  New  York  vs.  North  River  Sugar  Refining 
Co.,^  where  it  was  sought  to  forfeit  the  charter  of  this  sugar  company 
because  it  had  deeded  its  property  to  the  trust.  The  court  said  the 
transfer  was  void  because  a  manufacturing  concern  cannot  enter  into 
any  arrangement  which  will  avoid  and  disregard  statutory  permissions 
and  restraints.  By  attempting  so  to  do,  the  corporation  violated  its 
charter  and  failed  in  the  performance  of  its  corporate  duty  and  must 
be  dissolved.  It  is  noticeable  that  this  opinion  was  rendered  before 
the  enactment  of  the  anti-trust  law  in  New  York,  and  on  the  general 
ground  that  an  attempt  of  this  character  was  ultra  vires. 

In  State  of  Indiana  vs.  Haworth,^  an  attempt  was  made  to  invali- 
date an  act  which  provided  that  certain  officers  should  procure  and 
furnish  such  school  books  as  were  determined  upon  for  the  public 
schools.  It  was  claimed  that  this  resulted  in  a  monopoly  throughout 
the  state  for  certain  school  book  concerns.  The  court  decided  that 
the  statute  cannot  be  construed  as  creating  a  monopoly  requiring  that 
a  certain  class  of  books  should  be  used  to  the  exclusion  of  others,  as 
there  was  a  provision  throwing  open  to  all  the  competition  for  supply- 
ing books  to  the  state. 

Probably  the  most  famous  of  all  the  recent  monopoly  cases  is  that 
of  The  State  of  Ohio  vs.  Standard  Oil  Co.,^  decided  in  1892.  This 
was  in  the  nature  of  an  application  for  quo  warranto  to  oust  the 
defendant  from  its  franchises  as  a  corporation  because  of  wrongful 
combination.  Judgment  was  given  ousting  defendant  from  the  right 
to  make  a  certain  agreement  and  the  power  to  perform  it.  The  agree- 
ment in  question  was  the  far-famed  trust  agreement  which  is  set  out 
at  length  in  a  statement  by  Judge  Minchall,  who  decided  (p.  159), 

1  121  N.Y.  582;  g  L.  R.  A.  33. 

2  122  Ind.  462;  7  L.  R.  A.  240.  • 
349  Ohio  St.  137;  15  L.  R.  A.  145. 


CORPORATIONS  239 

"  By  this  agreement  —  indirectly  it  is  true  but  none  the  less  effectually 
—  the  defendant  is  controlled  and  managed  by  the  Standard  Oil 
Trust,  an  association  with  its  principal  place  of  business  in  New 
York  City,  and  organized  for  a  purpose  contrary  to  the  policy  of  our 
laws.  Its  object  was  to  establish  a  virtual  monopoly  of  the  business 
of  producing  petroleum,  by  which  it  might  not  merely  control  the 
production,  but  the  price  at  its  pleasure." 

The  Kansas  Supreme  Court  has  had  the  question  up  in  different 
shape  in  the  case  of  Kansas  vs.  Phipps,^  where  the  court  held  that 
foreign  insurance  companies  doing  business  in  that  state  that  com- 
bine to  control  and  mcrease  the  rates  of  insurance  violate  the  anti- 
trust law  of  Kansas. 

In  Missouri  the  case  of  State  ex  rel.  Wyatt  vs.  Ashbrook,^  was  an 
attack  upon  a  department  store  under  what  was  known  as  the  anti- 
department  store  law  of  that  state.  The  court  said  there  was  no 
such  evil  as  would  warrant  an  exercise  of  a  police  power  by  the  state 
in  the  passage  of  the  act  in  question ;  that  it  was  not  a  monopoly 
but  should  be  encouraged.  • 

In  Illinois  in  1900  in  the  case  of  the  Inter-Ocean  Publishing  Co.  vs. 
Associated  Press,^  the  Supreme  Court  of  Illinois  held  that  a  by-law 
of  the  Associated  Press  which  sought  to  exclude  from  publication  by 
any  of  its  members,  news  procured  from  any  other  source  than  itself, 
was  void  as  tending  to  create  a  monopoly  in  its  own  favor  and  to  pre- 
vent its  members  from  procuring  news  from  others  engaged  in  the 
same  character  of  work. 

In  the  case  of  Whitwell  vs.  Continental  Tobacco  Co.,^  an  attempt 
was  made  by  the  plaintiff  to  recover  treble  damages  under  the  federal 
anti-trust  act,  on  the  ground  that  the  defendants  refused  to  sell  the 
manufactured  products  of  the  Tobacco  Company  to  him  at  prices 
which  would  enable  him  to  resell  them  to  others  at  a  profit,  unless 
he  refrained  from  handling  chewing  tobacco  made  by  independent 
manufacturers.  Judge  Sanborn  wrote  the  prevailing  opinion  of  the 
United  States  Circuit  Court,  and  held  that  the  restriction  of  trade  by 
the  defendants  to  those  purchasers  who  declined  to  deal  in  goods  of 
their  competitors,  was  not  a  violation  of  the  anti-trust  law,  and 
further  that  the  owner  of  goods  may  at  all  times  dictate  the  prices  at 
which  he  will  sell  them.  The  refusal  to  sell  at  a  price  which  would 
enable  the  purchaser  to  resell  at  a  profit,  constitutes  no  legal  injury 
and  is  not  actionable.  One  ground  upon  which  he  bases  his  reason- 
ing is  that  the  tobacco  company  was  not  dealing  in  articles  of  prime 
necessity  like  corn  or  coal,  nor  was  it  rendering  a  public  service.^ 

1  so  Kan.  609 ;  18  L.  R.  A.  657. 

^  Decided  in  1900,  154  Mo.  375  ;   48  L.  R.  A.  265.  '  184  111.  43S. 

■*  125  Fed.  Rep.  454,  which  is  reported  with  very  full  notes  in  64  L.  R.  A.  689. 
^  Compare  this  with  the  case  of  King  vs.  Waddington,  i  East  143.     There  beer  was  held 
to  be  a  "victual"  or  necessity:   here  tobacco  is  a  luxury. 


240  CORPORATIONS 

The  case  of  Strauss  vs.  American  Publishers'  Ass'n/  decided  in 
February,  1904,  was  an  attempt  to  set  aside  an  agreement  between 
publishers  of  and  dealers  in  books,  whereby  they  contracted  not  to 
sell  books  of  any  kind  to  dealers  who  shall  be  suspected  of  selling 
copyrighted  books  at  less  than  the  net  price  fixed  by  the  publishers. 
The  court  held  that  this  contract  was  a  violation  of  the  New  York 
statute  against  monopolies. 

One  of  the  most  instructive  cases  is  that  of  the  City  of  Atlanta  vs. 
Chattanooga  Foundry  &  Pipe  Works,^  decided  in  1903  by  the  United 
State  Circuit  Court  of  Appeals,  —  Judges  Lurton,  Severens,  and 
Richards.^  This  was  brought  under  the  federal  anti-trust  law  against 
two  companies  of  the  State  of  Tennessee  which  made  cast-iron  pipe 
and  fittings.  The  declaration  averred  that  the  two  defendants 
entered  into  an  unlawful  combination  with  certain  other  corpora- 
tions in  the  same  line  for  the  purpose  of  restricting  bidding,  so  that 
an  Anniston  company,  which  received  the  contract  for  furnishing  the 
pipe,  got  $15,000  more  than  would  have  been  paid  but  for  the  agree- 
ment, and  this  unjuit  profit  was  divided  among  the  parties  to  the 
pool,  including  the  two  defendants.  Judge  Lurton  wrote  the  opinion, 
holding  that  the  action  would  lie  under  the  anti-trust  law. 

Of  Michigan  cases  probably  the  most  widely  known  is  that  of 
Richardson  vs.  Buhl.*  This  was  a  chancery  suit  to  enjoin  defendants 
from  selling  stock  in  a  mariufacturing  corporation  which  was  held  by 
them  as  security.  The  stock  was  that  of  the  Diamond  Match  Com- 
pany, and  the  question  of  its  legal  integrity  was  the  crucial  question 
in  the  case.  The  members  of  the  court  wrote  individual  opinions 
holding  the  Diamond  Match  Company  an  illegal  combination.  Judge 
Champlin  said  (p.  660),  "Such  a  vast  combination  as  has  been  entered 
into  is  a  menace  to  the  public.  Its  object  and  direct  tendency  is  to 
prevent  free  and  fair  competition,  and  control  prices  throughout  the 
national  domain.  It  is  no  answer  to  say  that  this  monopoly  has  in 
fact  reduced  the  price  of  matches.  That  policy  may  have  been  neces- 
sary to  crush  competition.  The  fact  exists  that  it  rests  in  the  discre- 
tion of  this  company  at  any  time  to  raise  the  price  to  an  exorbitant 
degree." 

Another  Michigan  case  is  that  of  Lovejoy  vs.  Michels.^  The 
defendant  ordered  two  sets  of  knives  from  a  concern  which  was  a  mem- 
ber of  the  knife  makers'  association,  one  of  the  principal  objects  of 
which  was  to  keep  up  prices.  No  price  was  agreed  upon  at  the  time 
of  the  order,  and  the  bills  were  received  after  the  knives  were  used. 
The  court  held  that  the  price  fixed  by  the  combination  of  manufac- 

'  177  N.Y.    473.  2  127  Fed.  Rep.  23. 

3  This  has  been  afSrmed  recently  in  the  Supreme  Court,  Mr.  Justice  Holmes  writing 
the  opinion.     (December  3d,  1906.) 

4  77  Mich.  632.  6  88  Mich.  IS. 


CORPORATIONS  241 

turers  was  not  the  one  which  should  control.  Such  combinations 
have  been  vicious  and  against  public  policy,  and  in  them  "the  odious 
features  of  illegal  monopolies  are  plainly  apparent." 

Another  Michigan  case  on  the  same  line  is  that  of  the  Detroit  Salt 
Co.  vs.  National  Salt  Co./  decided  in  1903.  The  opinion  of  Hooker, 
C.  J.,  holds  that  no  combinations  in  restraint  of  trade  are  lawful  in 
Michigan  to-day. 

Hunt  vs.  Riverside  Co-Operative  Co.  et  al.^  was  decided  in  1905; 
this  was  an  attempt  of  plumbers  to  fix  local  prices,  and  in  the  opinion 
of  Judge  Carpenter  it  is  announced  that  "the  mere  fact  that  the 
monopoly  created  is  not  a  complete  and  perfect  monopoly,  is  no  de-. 
fense."  We  find  a'lso  the  case  of  the  White  Star  line  vs.  Star  Line  of 
Steamers,^  decided  in  November,  1905,  in  which  the  complainant  and 
the  defendants,  with  three  other  steamboat  lines,  enter  into  a  pool  for 
the  purpose  of  controlling  water  traffic  between  Detioit  and  near-by 
points.  Judge  McAlvay  says  that  the  purpose  of  the  agreement 
"was  to  monopolize  and  control  traffic"  and  is  unlawful  and  invalid 
as  against  the  provisions  of  the  Sherman  Act,  known  as  the  federal 
anti-trust  law. 

Taking  these  statutes  and  decisions  together  we  may  conclude  that 
to-day  the  American  test  of  the  lawfulness  or  unlawfulness  of  the 
combinations  of  persons  or  forces  (as  being  of  a  monopolistic  char- 
acter) is  whether  or  not  they  tend  to  control  prices.  That  a  concern 
lowers  prices  is  no  defense  or  shield.  As  Mr.  Pingry  says  in  his  work 
on  "  Extraordmary  Industrial  and  Interstate  Contracts  "  (Sect.  321), 
"It  is  enough  to  know  that  the  natural  tendency  of  such  contracts 
is  injurious." 

It  is  somewhat  difficult  to  reconcile  some  "trade-union"  decisions 
with  the  rule  of  law  governing  combinations,  but  it  seems  fair  to 
assume  that  the  law  will  soon  be  shaped  by  American  intelligence  so 
that  it  will  provide  for  the  proper  control  of  these  bodies.  Agreements 
or  combinations  which  undertake  the  absolute  control  of  the  labor 
market  should  be  as  unlawful  as  any  trust  or  monopolies :  agree- 
ments which  provide  for  a  living  wage  should  be  legalized,  both  for 
labor  and  capital.  The  line  of  demarcation  is  hard  to  find,  but  we 
are  nearing  it  with  each  swing  of  the  pendulum. 

IV 

The  last  problem  suggested,  in  this  connection  is  with  relation  to 
"holding  companies."  This  new  kind  of  questionable  corporate 
character  is  prominent  now  because  of  the  recent  move  of  some 
of  our  monopolistic  combinations  in  transferring  the  stock  of  their 

'  I  S4  Mich.  105. 

2  140  Mich.  538,  12  D.  L.  N.  265.        »  141  Mich.  604,  12  D.  L.  N.  586. 


242  CORPORATIONS 

subsidiary  companies  to  English  corporations.     The  question  of  the 
hour  is  how  to  meet  this  method. 

Mr.  Beale  in  his  work  on  "  Foreign  Corporations  "  (Sect.  785),  lists 
seven  states  which  permit  their  corporations  to  acquire  stock  in  cor- 
porations of  other  states.  In  most  instances  this  power  is  limited  so 
as  to  prevent  the  encouragement  of  monopoly,  but  the  plan  of  trans- 
atlantic holding  companies  must  be  taken  from  the  other  end.  We 
cannot  control  the  power  of  the  holding  corporations.  Can  we  attain 
our  purpose  by  restricting  the  amount  of  stock  in  a  domestic  corpora- 
tion which  may  be  held  by  foreign  capital  ?  The  District  of  Columbia 
has  a  statute  (Compiled  Stat,  of  1894,  p.  43,  Sect.  2)  providing  that 
corporations  having  more  than  twenty  per  cent  of  stock  owned  by 
aliens  are  prohibited  from  holding  real  estate  in  the  district.  Shall 
it  be  our  policy  to  adopt  a  similar  method  ? 

Judge  Noyes  in  his  book  on  "  Intercorporate  Relations  "  (Sect.  286, 
p.  416)  says  "the  holding  by  foreign  corporations  of  the  stock  of 
domestic  companies  for  the  purpose  of  destroying  competition,  is 
inimical  to  public  policy  and  consequently  void,  but  in  such  a  case 
the  unlawful  purpose  is  the  essential  objection  rather  than  the  foreign 
domicile  of  the  corporation."  If  a  transatlantic  company  under- 
takes to  do  something  not  permitted  by  law  for  an  American  com- 
pany, is  not  its  purpose  avowedly  against  the  public  policy  of  this 
country  and  are  not  its  acts  here  void  ?  Surely  our  courts  have  power 
to  interfere,  on  a  proper  showing. 

This  last  development  seems  likely  to  become  a  feature  of  inter- 
national law.  A  leading  French  authority,  Mons.  A.  Fillet,  in  his 
book  on  the  "  Principles  of  Private  International  Law,"  ^  lays  down 
the  general  rule  that  a  stranger  domiciled  in  France,  or  other  foreign 
country,  should  have  no  greater  rights  than  he  has  in  his  own  coun- 
try. If  we  may  accept  this  as  true,  the  stranger  corporation  formed 
under  the  laws  of  England  for  the  purpose  of  controlling  stock  in 
American  corporations,  which  could  not  be  so  controlled  by  an  Ameri- 
can corporation,  is  undertaking  a  business  which  is  contrary  to  our 
laws  and  which  can  be  restrained  by  our  courts. 

It  has  been  the  boast  of  the  English  press  that  trusts  were  unknown 
in  Great  Britain ;  therefore  we  should  look  for  little  sympathy  in  our 
anti-trust  agitation  if  it  wxre  not  for  a  new  development  in  British  bus- 
iness circles.  This  is  a  trust  or  combination  of  the  soap  manufacturers 
against  which  the  London  Spectator  has  been  wielding  the  cudgels  in 
its  most  approved  fashion.  If  this  trust  becomes  popularly  obnox- 
ious, or  if  others  are  formed,  we  may  find  it  possible  to  make  an  ar- 
rangement with  England,  by  treaty  or  otherwise,  providing  that  no 
corporation  organized  in  one  country  shall  stand  as  a  holding  com- 
pany for  the  shares  of  corporations  organized  in  the  other  country. 

1  Pillet,  A.,  Principes  de  Droit  International  Prive,  Sect.  220,  etc. 


CORPORATIONS  243 

Is  it  not  possible  that  this  idea  may  soon  spread?  Why  should  it 
not  be  taken  up  at  the  next  Hague  conference,  as  it  is  a  menace 
threatening  the  internal  peace  of  any  progressive  industrial  nation? 

To  summarize  may  we  not  say  that  some  of  the  results  of  "The 
Case  of  the  Monopolies"  have  been  (a)  the  clear  establishment  of 
the  idea  that  sole  control  of  a  product  is  against  public  policy  and 
consequently  against  fundamicntal  law,  —  (b)  the  giving  a  firm  base 
and  good  outline  for  our  States  to  start  from  in  their  law-making  and 
their  courts.  One  of  its  suggestions,  too,  that  we  need  to-day  is  that 
the  monopolistic  idea  is  against  the  grain  of  English  thought,  and  that 
therefore  we  should  have  little  real  trouble  in  framing  an  understand- 
ing with  all  English  speaking  lands  as  to  an  interchange  of  corporate 
restriction. 


THE  STANDARD  OIL  DECISION:    THE  RULE  OF  REASON 

By  H.  L.  Wilgus,  of  the  Department  of  Law, 
University  of  MicmoAN 

(From  the  Michigan  Laiv  Review,  June,  1911) 

After  twenty-one  years  the  Sherman  Anti-Trust  Act  has  been 
applied  to  the  typical  combination  restraining  interstate  commerce, 
which  that  act  was  designed  to  prevent. 

In  the  debate  in  the  United  States  Senate,  on  the  original  bill  in- 
troduced by  Senator  Sherman,  he  said:  ^ 

Associated  enterprise  and  capital  are  not  satisfied  with  partnerships  and 
corporations  competing  with  each  other,  and  have  invented  a  new  form 
of  combination,  commonly  called  trusts,  that  seeks  to  avoid  competition 
by  combining  the  controlling  corporations,  partnerships,  and  individuals 
engaged  in  the  same  business,  and  placing  the  power  and  property  of  the 
combination  under  the  government  of  a  few  individuals,  and  often  under 
the  control  of  a  single  man  called  a  trustee,  a  chairman  or  a  president.  The 
sole  object  of  such  a  combination  is  to  make  competition  impossible.  It 
can  control  the  market,  raise  or  lower  prices,  as  will  best  promote  its  selfish 
interests,  reduce  prices  in  a  particular  locality  and  break  down  competition 
and  advance  prices  at  will  where  competition  does  not  exist.  Its  govern- 
ing motive  is  to  increase  the  profits  of  the  parties  comprising  it.  The  law 
of  selfishness,  uncontrolled  by  competition,  compels  it  to  disregard  the 
interests  of  the  consumer.  It  dictates  terms  to  transportation  companies, 
it  commands  the  price  of  labor  without  fear  of  strikes,  for  in  its  field  it 

'  iSee  Congressional  Record,  Vol.  21,  Mar.  21,  1890;  Bills  and  Debates  in  Congress 
relating  to  trusts,  1888-1902,  pp.  95-96.  There  are  many  other  references  to  the  Standard 
Oil  Co.  in  the  debates:   Allison,  p.  126;   Teller,  p.  170;  Wilson,  p.  337. 


244  CORPORATIONS 

allows  no  competitors.  Such  a  combination  is  far  more  dangerous  than  any 
heretofore  invented,  and,  when  it  embraces  the  great  body  of  all  the  cor- 
porations engaged  in  a  particular  industry  in  all  of  the  states  of  the  Union, 
it  tends  to  advance  the  price  to  the  consumer  of  any  article  produced,  it 
is  a  substantial  monopoly  injurious  to  the  public,  and,  by  the  rule  of  both 
the  common  and  the  civU  law,  is  null  and  void  and  the  just  subject  of  re- 
straint by  the  courts,  of  forfeiture  of  corporate  rights  and  privileges,  and 
in  some  cases  should  be  denounced  as  a  crime,  and  the  individuals  engaged 
in  it  should  be  punished  as  criminals.  It  is  this  kind  of  a  combination  we 
have  to  deal  with  now. 

Do  I  exaggerate  the  evil  we  have  to  deal  with?  I  do  not  think  so.  I 
do  not  wish  to  single  out  any  particular  trust  or  combination.  It  is  not 
a  particular  trust,  but  the  system  I  aim  at.  I  will  only  cite  a  very  few 
instances  of  combinations  that  have  been  the  subject  of  judicial  or  legisla- 
tive inquiry,  to  show  what  has  been  and  what  can  be  done  by  them,  as  fol- 
lows : 

In  Handy  vs.  C.  &  M.  R.  R.  Co.,  31  Fed.  689,  693.  "The  Standard  Oil 
Co.  and  George  Rice  were  competitors  in  the  business  of  refining  oil;  the 
Standard  desired  to  crush  Rice  and  his  business,  and  under  threat  of  building 
a  pipe  line,  compelled  the  receiver  of  the  railroad  to  carry  its  oil  at  10  cents 
per  barrel  and  charge  Rice  35  cents  per  barrel  for  a  like  service,  and  pay 
the  Standard  25  cents  out  of  the  35  cents  thus  exacted  from  Rice." 

It  also  appears  in  an  equity  suit  in  Pennsylvania  vs.  Penn.  R.R.  (1897), 
by  testimony  of  A.  J.  Cassatt,  that  the  Standard  Oil  Company  were  re- 
ceiving rebates  of  49c.  per  bbl.  on  crude  oil  from  Bradford  Oil  region  to  tide 
water,  5i|c.  from  the  lower  oil  region  to  tide  water,  and  64^c.  from  Cleve- 
land to  tide  water,  —  or  the  annual  illegal  receipts  by  the  Standard  Oil  Co. 
would  have  been  $5,480,000.  I  do  not  wish  to  single  out  the  Standard  OU 
Company.  ...  I  only  refer  to  them  because  they  are  the  oldest  of  these 
combinations  founded  upon  contracts  which  have  been  copied  by  the  other 
corporations.^  Sir,  now  the  people  of  the  United  States  as  well  as  of  other 
countries  are  feeling  the  power  and  grasp  of  these  conbinations,  and  are  de- 
manding of  every  legislature  and  of  Congress  a  remedy  for  this  evil,  only 
grown  into  huge  proportions  in  recent  times.  They  had  monopolies  and 
mortmains  of  old,  but  never  before  such  giants  as  in  our  day.  You  must 
heed  their  appeal  or  be  ready  for  the  Socialist,  the  Communist,  and  the 
Nihilist.     Society  is  now  disturbed  by  forces  never  felt  before.^ 

The  Supreme  Court  of  the  United  States  has  now  —  after  these 
2 1  years  —  decided  ^  that  the  Standard  Oil  Company  of  New  Jersey, 
is  an  unlawful  combination  in  restraint  of  interstate  and  foreign 
commerce,  in  violation  of  the  Federal  Sherman  Anti-trust  act  of 
1890.  The  court's  decision  to  this  effect  is  unanimous,  affirming  the 
unanimous  decision  of  the  Circuit  Court.^ 
■    The  court  ruled:    (i)  That  the  Anti-trust  act   makes  only   con- 

*  See  Congressional  Record,  Vol.  21,  March  24,  igSo;   Bills  &  Debates,  p.  167. 
2  Ibid.      Bills  &  Debates,  p.  loi. 

*  United  States  vs.  Standard  Oil  Co.,  U.S.,  (May  15,  191 1). 
■*  173  Fed.  177;  152  Fed.  290. 


CORPORATIONS  245 

tracts  and  combinations  in  unreasonable  restraint  of  interstate  and 
foreign  trade  and  commerce  illegal,  and  (2)  that  the  Standard  Oil  Co. 
of  New  Jersey  is  such  a  combination.  Chief  Justice  White  writes 
the  opinion,  Mr.  Justice  Harlan  vigorously  dissenting  on  the  first 
proposition.  Whether  all  the  other  justices  concur  in  the  result  only, 
or  also  upon  the  first  proposition,  is  not  definitely  stated  in  the  re- 
ports received;  but  that  a  majoiity  of  the  court  concurs  on  the  first 
proposition  is  indicated  by  the  words  of  the  Chief  Justice  that  if 
there  are  statements  in  former  decisions  inconsistent  with  this,  "they 
are  necessarily  now  limited  and  qualified." 

The  court  had  no  difficulty  in  unanimously  finding  from  the  facts, 
that  the  Standard  Oil  Company  of  New  Jersey  was  a  combination  in 
unreasonable  restraint  of  interstate  commerce.  The  Circuit  Court 
also  had  no  difficulty  in  so  unanimously  finding.  Hence,  there  was 
no  question  before  the  court  requiring  it  to  decide  that  the  Anti-trust 
act  applied  only  to  combinations  in  unreasonable  restraint  of  inter- 
state commerce,  and  it  seems  unusual  for  the  court  in  a  case  where 
such  a  question  is  not  involved  to  overrule  two  prior  decisions  where 
such  a  question  was  directly  and  necessarily  involved  and  passed  upon. 

The  facts  are  generally  known  and  voluminous  (23  volumes,  12,000 
pages),  yet  a  summary  is  proper  to  show  how  unnecessary  it  was  for 
the  court  in  this  case  to  announce  the  first  proposition.  The  follow- 
ing, gleaned  from  various  sources,  but  more  than  confirmed  by  the 
record  in  the  case,  will  make  this  clear : 
^^^""^Oil  was  "struck"  by  boring  in  1858,  in  Northwestern  Pennsyl- 
vania, near  Titusville,  about  25  miles  from  Corry,  Union  City,  and 
Meadville,  125  miles  from  Cleveland,  and  170  from  Pittsburg  by  rail. 
The  Pennsylvania  road  reached  Corry  and  Union  City,  and  from  the 
latter  connected  with  the  Lake  Shore,  25  miles  away,  at  Erie;  the 
Erie  road  ran  through  Corry,  Union  City  and  Meadville.  In  1863 
the  Oil  Creek  railroad  reached  TitusviUe  and  Oil  City  from  Corry, 
and  the  Erie  road  built  to  Franklin ;  in  1868  the  Lake  Shore  completed 
a  line  to  Oil  City.  By  1868  successful  pipe  lines,  storage  reservoirs, 
and  transferable  oil  certificates  were  in  use.  The  first  refinery  had 
been  built  in  1862,  in  which  the  processes  yet  in  use  were  employed. 
In  1865  Mr.  J.  D.  Rockefeller  went  into  the  refining  business  at  Cleve- 
Xaxid.  In  1876  he  took  in  his  brother  William  and  H.  M.  Flagler. 
^  In  1868  Mr.  Rockefeller  represented  to  General  Devereux,  Vice- 
President  of  the  Lake  Shore  road,  that  building  refineries  at  the  oil 
regions  would  ruin  the  Cleveland  refineries,  and  destroy  the  oil  traffic 
of  the  road ;  a  rebate  of  15  cents  per  barrel  from  the  40  cent  rate  on 
the  crude  oil  from  the  fields  was  made  to  Mr.  Rockefeller,  and  he  agreed 
to  fight  it  out  with  the  oil  region  refineries.^  In  1870,  the  Standard 
Oil  Co.  of  Ohio  was  formed  by  Mr.  Rockefeller  and  his  associates  with 

^Tarbell,  Ida,  McClures  Magazine,  Nov.  1902,  and  following. 


246  CORPORATIONS 

a  capital  stock  of  $1,000,000,  and  their  refining  capacity  was  600 
barrels  of  crude  oil  daily  ^  —  the  production  of  all  the  150  refineries 
^  the  country  being  15,000  barrels  daily .^  Some  of  the  railroad 
officials  became  stockholders  in  the  Standard  Oil  Co.^  In  1871  (May 
6)  the  South  Improvement  Co.  was  chartered  in  Pennsylvania,  with 
very  broad  powers ;  this  was  brought  to  Mr.  Rockefeller's  attention 
as  early  as  October,  1871,*  and  he,  and  four  other  Standard  Oil  Co. 
members,  took  1,375  shares  of  the  2,000  of  its  stock,  and  Peter  Wat- 
son, freight  agent  of  the  Lake  Shore,  took  100  more.-^  The  company 
was  organized,  Watson  made  president,  and  January  18,  1872,  a  con- 
tract was  entered  into  Avith  the  railroads,  signed  by  the  presidents  or 
managers,  whereby  oil  rates  were  to  be  doubled,  and  the  South  Im- 
provement Co.  was  to  have  rebates  (40  cents  out  of  80  cents  On  crude 
oil  to  Cleveland,  $1.06  out  of  $2.56  to  New  York)  on  crude  oil  shipped 
by  it,  and  50  cents  out  of  $2.00  on  refined,  from  Cleveland  to  New  York ; 
and  in  addition  to  these  rebates,  the  South  Improvement  Co.  was  to 
have  drawbacks  to  the  same  amount  on  all  oil  shipped  by  all  other  ship- 
pers; the  rate  from  the  oil  fields  to  New  York,  125  miles  nearer  than 
Cleveland,  was  made  S2.92  —  or  92  cents  higher ;  the  railroads  agreed 
to  furnish  all  way  bills  of  all  oil  shipped  by  any  one  and  open  their 
books  to  them  (the  Improvement  Co.)  and  do  everything  they  could 
to  insure  them  "against  loss  or  injury  by  competition^'  February  12 
the  Standard  increased  its  stock  to  $2,500,000,  and  Mr.  Rockefeller 
proceeded  to  Cleveland,  and  told  the  thirty  refineries  there  that  if 
they  didn't  sell  their  property  to  him  it  would  be  valueless  —  that 
there  was  a  combination  of  railroad  and  oil  men.^  The  result  was  that 
of  the  thirty  refineries  all  but  four  or  five  sold  out  at  from  45  to  56 
per  cent  of  their  value^yThe  premature  putting  into  effect  of  this 
contract,  February  26,  almost  led  to  riots  ^  in  the  oil  regions,  and  the 
railroads  were  obliged  to  abrogate  it,  and  there  followed  legislative 
investigations  and  the  repeal  of  the  charter,  March  25,  1872.  A  new 
contract  was  made  with  "perfect  equality  to  all  shippers,"  which  didn't 
last  two  weeks,  and  it  soon  became  apparent  that  the  railroads  "were. 
doing  for  the  Standard  secretly  just  what  they  had  publicly  contracted^, 
to  do  for  the  South  Improvement  Co."  ^  The  details  are  obscure  in 
some  places.  The  result,  however,  was  perfectly  apparent.  The 
Standard  first  acquired  control  of  the  local  pipe  lines,  by  means  of 
drawbacks  of  22  cents  per  barrel  allowed  to  the  Standard  lines  —  and 
the  other  local  hues  "died  off  like  sheep."  ^^     In  1875,  lower  rates  were 

1  Indus.  Com.  R.,  606,  68g.  2  ibid.  547,  626,  647. 

'Ibid.  606,  64s,  6go,  694,  703.  ''Ibid.  691.  ^  Ibid.  6go. 

^  I  Indus.  Com.  R.,  6g2,  644. 

"  Ibid.  616,  644,  648,  692 ;  43  O.  S.,  581 ;  Tarbell,  Ida,  McClure's  Magazine,  Nov.  1902, 
and  following. 

*  13  Indus.  Com.  R.,  641.  '  i  Indus.  Com.  R.,  385-386. 

"Ibid.  386,  388,  641,  696,  697. 


CORPORATIONS  247 

given  the  Standard  on  western  shipments,  by  allowing  them  to  ship 
tank  cars  averaging  100  barrels  and  billing  them  at  80  barrels,  and, 
although  the  tariff  rates  were  charged,  "according  to  some  prearranged 
method,"  a  portion  was  refunded  under  the  names  of  "drawbacks" 
or  "rebates."  ^  This  contract  lasted  till  1883.2  To  enable  the  Stand- 
ard to  acquire  a  competing  pipe  line  the  New  York  Central  made  a 
rate  netting  11  cents  to  the  Standard,  when  the  open  rate  was  $1.90 
from  Cleveland  to  New  York.^  In  187S,  the  Standard,  stating  they 
had  regularly  received  35  cents  commission  per  barrel  from  the  New 
York  Central,  and  20  cents  from  the  Erie,  demanded  20  cents  per 
barrel  from  the  Pennsylvania  on  all  oil  shipped  by  these  roads,  and 
Mr.  Cassatt  granted  it  "after  seeing  the  receipted  bills "  from  the  other 
roads.  This  amounted  on  the  Pennsylvania  alone,  in  two  months,  to 
$68,753.  It  had  been  in  existence  since  October  17,  1877,  on  the 
other  roads.*  Another  contract  gave  a  Standard  Oil  Terminal  Company 
22^  cents  "on  all  oil  transported'^  by  the  Pennsylvania  Co.^  In  these 
ways,  by  1879,  the  Standard  had  obtained  not  only  control  of  the  local 
pipe  lines,  but  also  the  terminal  facilities  of  the  four  trunk  lines  at 
Philadelphia,  Baltimore  and  New  York,^  and  had  obtained  control  of 
90  or  95  per  cent  of  the  refining  business  of  the  country,^  and,  accord- 
ing to  the  Hepburn  Committee,  "the  parties  who  have  been  driven  to 
the  wall  have  had  ample  capital  and  equal  ability  in  the  prosecution 
of  their  business  in  all  things  save  their  ability  to  acquire  facilities  for 
transportation."  ^ 

Similar  discriminations  by  railroad  companies  in  favor  of  the  Stand- 
ard Oil  Co.,  or  of  some  of  its  numerous  affiliated  companies  had  prac- 
tically continued  to  the  time  of  bringing  the  suit  in  this  case. 

In  1879,  a  secret  trust  agreement  was  entered  into  by  the  thirty-seven 
stockholders  of  the  Standard  Oil  Company  of  Ohio,  whereby  the  stocks 
of  thirty  separate  competing  companies,  were  turned  over  to  trustees 
to  hold,  control  and  manage  for  the  benefit  of  the  stockholders  of  the 
Standard.  This  was  superseded  in  1882  by  the  Standard  Oil  Trust  com- 
posed of  trustees.  Forty  corporations  (including  those  of  1879)  were 
taken  in,  their  $56,000,000  of  capital  stock  being  exchanged  by  their 
stockholders  with  the  trustees  for  $70,000,000  trust  certificates.  In  the 
ten  years  after  1882,  the  stocks  of  seventy-eight  more  companies  were 
acquired,  but  fifty  refineries  had  been  dismantled  in  the  meantime; 
$1 2,000,000  more  trust  certificates  had  been  issued  for  these  properties 
and  $15,000,000  more  issued  as  a  stock  dividend,  making  $97,250,000 
trust  certificates  outstanding  against  property  valued  at  $67,936,000. 
In  March,  1892,  the  Supreme  Court  of  Ohio  declared  the  Trust  illegal 

1  4^  O.  S.,  571,  583-584,  from  finding  of  facts  by  trial  court. 

2  Ibid. 

'  I  Indus.  Com.  R.,  263,  513,  696,  713.  •  13  Indus.  Com.  R.,  643. 

••Ibid.  387.  '  I  Indus.  Com.  R.,  646,  647. 

'Ibid.  387,  696.  *  19  Indus.  Com   R.,  654. 


248  CORPORATIONS 

and  ordered  its  dissolution.'  At  this  time  the  stocks  of  eighty-four  com- 
panies were  held  by  the  trustees.  The  trustees  of  the  trust  appointed 
themselves  liquidating  trustees  and  proceeded  to  liquidate  in  the  fol- 
/lowing  way :  The  stock  of  twenty-three  of  these  companies  was  trans- 
//  ferred  to  the  Standard  Oil  Co.  of  New  Jersey ;  that  of  eleven  other 
companies  to  the  Standard  Oil  Co.  of  New  York ;  that  of  eleven  other 
companies  to  the  Anglo-American  Oil  Co.  of  England ;  and  that  of  nine- 
teen other  companies  to  seven  other  corporations,  leaving  the  stock  of 
twenty  other  companies  in  the  hands  of  the  trustees  for  distribution ; 
and  these  twenty  companies  by  stock  ownership  controlled  all  of  the 
others  which  had  been  in  the  hands  of  the  trustees ;  since  there  were 
972,500  trust  certificates  of  $100  each  the  trustees  offered  to  each 
holder  of  one  trust  certificate  1/972500  of  the  stock  of  all  the  twenty 
companies  that  owned  the  stocks  of  the  other  sixty- four  companies ; 
by  the  end  of  the  year  494,619  trust  certificates  (a  bare  majority  of 
all)  had  been  exchanged  by  the  trustees  with  themselves  and  their 
immediate  associates,  for  their  proportional  amounts  of  the  stocks  in 
the  twenty  companies  thereby  giving  them  the  control  of  these  com- 
panies, and  besides  leaving  the  balance  of  the  trust  certificates  in 
their  hands.  During  the  next  six  years  only  two  more  shares  of 
trust  certificates  were  exchanged ;  in  the  meantime  dividends  were 
regularly  declared  upon  the  outstanding  trust  certificates,  and 
exactly  enough  to  pay  these  was  collected  by  the  trustees  from  the 
income  of  the  sub-companies.  In  1897,  the  Attorney-General  of  Ohio 
filed  contempt  proceedings  against  the  Standard  Oil  Co.,  for  not  in 
good  faith  dissolving  the  trust,  but  on  the  testimony  of  Mr.  Rocke- 
feller and  other  high  officials  of  the  company,  that  this  had  been 
done  in  good  faith  and  that  the  twenty  companies  were  competing, 
this  case  was  dismissed.  However,  within  a  month  after  filing  the 
suit  a  large  amount  of  trust  certificates!  was  turned  in  and  stock  of  the 
sub-companies  issued ;  and  in  1899  the  "Standard  Oil  Company  of  New 
Jersey  was  reorganized,  with  a  capital  stock  of  $100,000,000,  with  the 
power  to  do  all  the  kinds  of  business  done  by  all  the  sub-companies, 
with  the  same  by-laws  as  those  of  the  trust,  and  with  the  liquidating 
trustees  as  directors ;  the  balance  of  tie  trust  certificates  were  liqui- 
dated at  once ;  all  of  the  shares  of  the  twenty  9?ib-companies  were 
then  turned  over  by  the  shareholders  (several  thousand  in  number),  to 
the  Standard  Oil  Company  of  New  Jersey,  and  exactly  972,500  shares 
of  its  stock  were  issued  to  such  shareholders,  and  thereby  when  the 
Government  brought  its  suit  the  Standard  Oil  Company  of  New  Jersey 
owned  directly  the  stock  of  sixty-five  sub-companies,  which  in  turn 
owned  the  stock  of  forty-nine  others  ;  and  of  the  972,500  shares  of  the 
Standard  Oil  Co.  of  New  Jersey,  the  liquidating  trustees  and  their 
immediate  business  associates,  own  over  500,000  share^ ;   the  par  value 

.    1  State  vs.  Standard  Oil  Co.,  49  Ohio  St.  137. 


CORPORATIONS  249 

of  the  shares  is  Sioo ;  the  market  value  at  the  time  of  the  decision 
was  $672,  and  has  been  as  high  as  $843 ;  and  for  many  years  divi- 
dends from  thirty  to  forty-eight  per  cent  have  been  paid.  _    _  _^ 

Upon  the  first  proposition  —  that  the  anti- trust  act  applies  only  to 
contracts  and  combinations  in  unreasonable  restraint  of  trade  —  the 
Chief  Justice  insists  that  "contracts  in  restraint  of  trade"  in  the  statute 
means  only  such  as  were  by  the  common  law  in  unreasonable  restraint 
of  trade,  as  known  and  understood  at  the  time  the  law  was  passed. 
In  so  holding  he  reiterates  substantially  what  he  said  in  his  dissenting 
opinion  in  United  States  vs.  Freight  Association.^ 

This  was  the  suit  brought  by  the  Government  to  dissolve  the  Trans- 
Missouri  Freight  Association,  organized  for  the  purpose  of  "main- 
taining just  and  reasonable  rates,  preventing  unjust  discriminations, 
by  furnishing  adecjuate  and  equal  facilities  for  the  interchange  of 
traffic  betAveen  the  several  lines,  without  preventing  or  illegally  limit- 
ing competition."  The  case  was  heard  on  the  pleadings,  and  the 
answer  stating  the  above  facts  was  admitted  to  be  true.  The  district 
court,  Riner,  J.,  held  that  such  an  agreement  did  not  violate  the 
Anti-trust  act.^  This  was  affirmed  by  the  Circuit  Court  of  Appeals, 
Sanborn  and  Thayer,  JJ.,  Shiras,  J.,  dissenting.^ 

In  the  Supreme  Court,  Mr.  Justice  Peckham  (White,  Field,  Gray, 
Shiras,  JJ.,  dissenting),  delivered  the  opinion,  and  said: 

What  is  the  meaning  of  the  language  as  used  in  the  Statute,  that  "every 
contract,  combination  in  the  form  of  trust  or  otherwise,  or  conspiracy  in 
restraint  of  trade  or  commerce  among  the  several  states  or  with  foreign 
nations,  is  hereby  declared  to  be  illegal"?  Is  it  confined  to  a  contract  or 
combination  which  is  only  in  unreasonable  restraint  of  trade  or  commerce, 
or  does  it  include  what  the  language  of  the  act  plainly  and  in  terms  covers, 
all  contracts  of  that  nature?  ...  It  is  now  with  much  amplification  of 
argument  urged  that  the  statute,  in  declaring  illegal  every  combination  in 
the  form  of  trust  or  otherwise,  or  conspiracy  in  restraint  of  trade  or  com- 
merce, does  not  mean  what  the  language  used  therein  plainly  imports,  but 
that  it  only  means  to  declare  illegal  any  such  contract  which  is  in  unreason- 
able restraint  of  trade,  while  leaving  all  others  unaffected  by  the  provisions 
of  the  act ;  that  the  common  law  meaning  of  the  term  "contract  in  restraint 
of  trade,"  includes  only  such  contracts  as  are  in  unreasonable  restraint  of 
trade,  and  when  that  term  is  used  in  the  Federal  statute  it  is  not  intended 
to  include  all  contracts  in  restraint  of  trade,  but  only  those  which  are  in 
unreasonable  restraint  thereof. 

This  is  exactly  the  holding  of  Sanborn  and  Thayer,  JJ.,  in  the 
Court  of  Appeals.     Justice  Peckham  continues : 

The  term  is  not  of  such  limited  signification,  contracts  in  restraint  of 
trade  have  been  known  and  spoken  of  for  hundreds  of  years  both  in  Eng- 
land and  in  this  country,  and  the  term  includes  all  kinds  of  those  contracts 

J  166  U.S.  335.  2  us.  vs.  Trans-Mo.  Freight  Ass'n  (1892),  53  Fed.  440. 

3  Ibid.,  (1893),  58  Fed.  58. 


250  CORPORATIONS 

which  in  fact  restrain  or  may  restrain  trade.  Some  of  such  contracts  have 
been  held  void  and  unenforceable  in  the  courts  by  reason  of  their  restraint 
being  unreasonable,  while  others  have  been  held  valid  because  they  were 
not  of  that  nature.  A  contract  may  be  in  restraint  of  trade  and  still  be 
valid  at  common  law.  Although  valid,  it  is  nevertheless  a  contract  in  re- 
straint of  trade,  and  would  be  so  described  either  at  common  law  or  else- 
where. By  the  simple  use  of  the  term  "contract  in  restraint  of  trade,"  all 
contracts  of  that  nature,  whether  valid  or  otherwise,  would  be  included, 
and  not  alone  that  kind  of  contract  which  was  invalid  and  unenforceable 
as  being  in  unreasonable  restraint  of  trade.  When,  therefore,  the  body  of 
the  act  pronounces  as  illegal  every  contract  or  combination  in  restraint  of 
trade  or  commerce  among  the  several  states,  the  plain  and  ordinary  meaning 
of  such  language  is  not  limited  to  that  kind  of  contract  alone  which  is  in 
unreasonable  restraint  of  trade,  but  all  contracts  are  included  in  such 
language,  and  no  exception  or  limitation  can  be  added  without  placing  in 
the  act  that  which  has  been  omitted  by  Congress. 

In  United  States  vs.  Joint  Traffic  Ass'n/  the  facts  were  similar  and 
a  reconsideration  of  the  holding  in  the  Trans-Missouri  case  was  asked, 
on  the  ground  that  the  Anti-trust  act,  if  it  made  "every  contract  in 
restraint  of  interstate  commerce"  illegal,  the  act  was  then  unconsti- 
tutional as  depriving  persons  of  their  liberty  without  due  process  of 
law.  The  court,  however,  overruled  this,  and  reaffirmed  the  view 
taken  in  the  Trans-Missouri  case.  Mr.  Justice  Peckham  again  de- 
livered the  opinion  of  the  court,  and  Gray,  Shiras,  and  White,  JJ., 
dissented. 

The  same  constitutional  point  was  afiirmed  in  Addyston  Pipe  and 
Steel  Co.  vs.  U.S.,^  and  also  in  Montague  &  Co.  vs.  Lowrie,^  Mr. 
Justice  Peckham  delivering  the  opinions  in  both  cases. 

In  Northern  Securities  Co.  vs.  U.S.,^  the  question  was  again  raised, 
Justices  Harlan,  Brown,  McKenna  and  Day  holding  that  the  Anti- 
trust act  "embraces  all  direct  restraints,  reasonable  or  unreasonable." 
In  his  concurring  opinion,  Mr.  Justice  Brewer,  however,  said  of  the 
preceding  Traffic  Association  and  other  cases,  "Instead  of  holding 
that  the  Anti-Trust  Act  included  all  contracts  reasonable  or  unreason- 
able, in  restraint  of  interstate  trade,  the  ruling  should  have  been  that 
the  contracts  there  presented  were  unreasonable  restraints  of  inter- 
state trade,  and  as  such  within  the  scope  of  the  act.  .  .  .  Congress 
did  not  intend  to  reach  and  destroy  those  minor  contracts  in  partial 
restraint  of  trade  which  the  long  course  of  decisions  at  common  law 
had  affirmed  were  reasonable  and  ought  to  be  upheld."  In  this 
case  Fuller,  C.  J.,  White,  Peckham,  Holmes,  JJ.,  dissented  on  the 
ground  that  "the  acquisition  and  ownership  of  stock  in  competing 
railroads,  organized  under  state  law,  by  several  persons  or  by  corpora- 
tions, is  not  interstate  commerce,  and,  therefore,  not  subject  to  the 

I171U.S.  ss6.  2  175  U.S.  228. 

8 193  U.S.  38.  *  193  U.S.  197. 


CORPORATIONS  251 

control  of  Congress."  But  in  Loewe  vs.  Lawlor/  Chief  Justice  Fuller 
speaking  for  the  whole  court  without  dissent,  citing  the  foregoing 
cases  says  (p.  297),  they  "hold  in  effect  that  the  Anti-trust  law  has  a 
broader  application  than  the  prohibition  of  restraints  of  trade  unlaw- 
ful at  common  law." 

The  road  Chief  Justice  White  travels  in  reaching  the  conclusion 
that  only  unreasonable  restraint  is  forbidden  is : 

The  text  of  the  first  and  second  sections  of  the  act  is: 

"Section  i.  Every  contract,  combination  in  the  form  of  trust  or  other- 
wise or  conspiracy,  in  restraint  of  trade  or  commerce,  among  the  several 
states,  or  with  foreign  nations,  is  hereby  declared  to  be  illegal.  .  .  ." 

"  Section  2.  Every  person  who  shall  monopolize  or  attempt  to  monopolize 
or  combine  or  conspire  with  any  person  or  persons  to  monopolize  any  part 
of  the  trade  or  commerce  among  the  several  states,  or  with  foreign  nations, 
shall  be  deemed  guilty  of  a  misdemeanor.  .  .  ." 

The  debates  show  that  doubt  as  to  whether  there  was  a  common  law  of 
the  United  States  which  governed  the  subject  in  the  absence  of  legislation 
was  among  the  influences  leading  to  the  passage  of  the  act.  They  conclu- 
sively show,  however,  that  the  main  cause  which  led  to  the  legislation  was 
the  thought  .  .  .  that  combinations  known  as  trusts  were  being  multiplied, 
and  the  widespread  impression  that  their  power  had  been  and  would  be 
exerted  to  oppress  individuals  and  injure  the  public  generally. 

The  sole  subject  with  which  the  first  section  deals  is  restraint  of  trade, 
as  therein  contemplated,  and  the  attempt  to  monopolize  is  the  subject  with 
which  the  second  section  is  concerned.  It  is  certain  that  those  terms,  at 
least  in  their  rudimentary  meaning,  took  their  origin  in  the  common  law 
and  were  familiar  in  the  law  of  this  country  prior  to  and  at  the  time  of  the 
adoption  of  the  act  in  question. 

It  is  certain  that  at  a  remote  period  the  words  contract  in  restraint  of 
trade  in  England  came  to  refer  to  some  voluntary  restraint  put  by  contract 
by  an  individual  on  his  right  to  carry  on  his  trade  or  calling.  Originally 
all  such  contracts  were  considered  to  be  illegal,  because  it  was  deemed  they 
were  injurious  to  the  public  as  well  as  to  the  individuals  who  made  them. 
In  the  interest  of  freedom  of  individuals  to  contract  this  doctrine  was  modi- 
fied so  that  it  was  only  when  a  restraint  by  contract  was  so  general  as  to  be 
coterminous  with  the  kingdom  that  it  was  treated  as  void.  That  is  to  say, 
if  the  restraint  was  partial  in  its  operation  and  was  otherwise  reasonable 
the  contract  was  held  to  be  valid. 

Monopolies  were  defined  by  Lord  Coke  as  follows:  "A  monopoly  is  an 
institution,  or  allowance  by  the  king  by  his  grant,  commission,  or  otherwise 
to  any  person  or  persons,  bodies  politic  or  corporation,  of  or  for  the  sole 
buying,  selling,  making,  working,  or  using  of  any  thing,  whereby  any  person 
or  persons,  bodies  politic  or  corporate  are  sought  to  be  restrained  of  any 
freedom  or  liberty  that  they  had  before,  or  hindered  in  their  lawful  trade." 

As  monopoly,  as  thus  conceived,  embraced  only  a  consequent  arising 
from  an  exertion  of  sovereign  power,  no  express  restrictions  or  prohibitions 
obtained  against  the  creation  by  an  individual  of  a  monopoly  as  such. 

1 208  U.S.  274. 


252  CORPORATIONS 

But  as  it  was  considered,  at  least  so  far  as  the  necessaries  of  life  were 
concerned,  that  individuals  by  the  abuse  of  their  right  of  contract  might 
be  able  to  usurp  the  power  arbitrarily  to  enhance  prices,  one  of  the  wrongs 
arising  from  monopoly,  it  came  to  be  that  laws  were  passed  relating  to 
offenses  such  as  forestalling  and  engrossing,  by  which  prohibitions  were 
placed  upon  the  power  of  individuals  to  deal  under  such  circumstances 
and  conditions  as  ...  to  give  rise  to  the  presumption  of  an  intent  to  injure 
others  through  the  means  of  a  monopolistic  increase  of  prices. 

[Hence,]  the  prohibited  act  of  engrossing,  because  of  its  inevitable  ac- 
complishment of  one  of  the  evils  deemed  to  be  engendered  by  monopoly, 
came  to  be  referred  to  as  being  a  monopoly  or  constituting  an  attempt  to 
monopolize. 

From  the  development  of  more  accurate  economic  conceptions  and  the 
changes  in  conditions  of  society  it  came  to  be  recognized  that  the  acts 
prohibited  by  the  engrossing,  forestalling,  etc.,  statutes  did  not  have  the 
harmful  tendency  which  they  were  presumed  to  have  when  the  legislation 
concerning  them  was  enacted,  and  so  such  acts  were  repealed  in  England 
in  1844. 

By  an  early  statute  of  the  Province  of  Massachusetts,  1778-177Q,  mo- 
nopoly and  forestalling  were  expressly  treated  as  one  and  the  same.  It  is 
also  true  that  the  principles  concerning  contracts  in  restraint  of  trade, 
that  is  voluntary  restraint  put  by  a  person  on  his  right  to  pursue  his  calling, 
came  generally  to  be  recognized  in  accordance  with  the  English  rule.  It 
came,  moreover  to  pass  that  contracts  or  acts  which  it  was  considered  had 
a  monopolistic  tendency,  especially  those  which  were  thought  to  unduly 
diminish  competition  and  hence  to  enhance  prices  —  in  other  words,  to 
monopolize  —  came  also  in  a  generic  sense  to  be  spoken  of  and  treated  as 
they  had  been  in  England,  as  restricting  the  due  course  of  trade,  and  there- 
fore as  being  in  restraint  of  trade. 

Without  going  into  detail  and  but  briefly  surveying  the  whole  field,  it 
may  be  with  accuracy,  said  that  the  dread  of  enhancement  of  prices  and  of 
other  wrongs  which,  it  was  thought,  would  flow  from  the  undue  limitation 
of  competitive  conditions  caused  by  contracts  or  other  acts  of  individuals 
or  corporations,  led  as  a  matter  of  pubhc  policy,  to  the  prohibition  or  treat- 
ing as  illegal  of  contracts  or  acts  which  were  unreasonably  restrictive  of 
competitive  conditions,  either  from  the  nature  or  character  of  the  contract 
or  act,  or  where  the  surrounding  circumstances  were  such  as  to  justify  the 
conclusion  they  had  not  been  entered  into  or  performed  with  the  legitimate 
purpose  of  reasonably  forwarding  personal  interest  and  developing  trade, 
but  on  the  contrary  were  of  such  a  character  as  to  give  rise  to  the  inference 
or  presumption  that  they  had  been  entered  into  or  done  with  the  intent 
to  do  wrong  to  the  general  public  and  to  limit  the  right  of  individuals,  thus 
restraining  the  free  flow  of  commerce  and  tending  to  bring  about  the  evfls, 
such  as  enhancement  of  prices,  which  were  considered  to  be  against  public 
policy. 

In  view  of  the  common  law  and  the  law  in  this  country  as  to  restraint 
of  trade,  which  we  have  reviewed,  we  think  it  results,  [as  to  the  first  section] : 

(a)  That  the  context  manifests  that  the  statute  was  drawn  in  the  light 
of  the  existing  practical  conception  of  the  law  of  restraint  of  trade. 

(b)  That  in  view  of  the  many  new  forms  of  contracts  and  combinations 


CORPORATIONS  253 

which  were  being  evolved  from  existing  economic  conditions  it  was  deemed 
essential  by  an  all  embracing  enumeration  to  make  sure  that  no  form  of 
contract  or  combination  by  which  an  undue  restraint  of  interstate  or  for- 
eign commerce  was  brought  about  could  save  such  restraint  from  condem- 
nation. 

(c)  And  as  the  contracts  or  acts  embraced  in  the  provision  were  not 
expressly  defined,  since  the  enumeration  addressed  itself  to  classes  broad 
enough  to  embrace  every  conceivable  contract  or  combination  which  could 
be  made  concerning  trade  or  commerce  or  the  subjects  of  such  commerce, 
and  thus  caused  any  act  done  by  any  of  the  enumerated  methods  anywhere 
in  the  whole  field  of  human  activity  to  be  illegal  if  in  restraint  of  trade,  it 
inevitably  follows  that  the  provision  necessarily  called  for  the  exercise  of 
judgment  which  required  that  some  standard  should  be  resorted  to  for  the 
purpose  of  determining  whether  the  prohibitions  contained  in  the  statute 
had  or  had  not  in  any  given  case  been  violated.  Thus  not  specifying,  but 
indubitably  contemplating  and  requiring  a  standard,  it  follows  that  it  was 
intended  that  the  standard  of  reason  which  had  been  applied  to  the  com- 
mon law  and  in  this  country  in  deahng  with  subjects  of  the  character  em- 
braced by  the  statute  was  intended  to  be  the  measure  used  for  the  purpose 
of  determining  whether  in  a  given  case  a  particular  act  had  or  had  not 
brought  about  the  wrong  against  which  the  statute  provided. 

And  a  consideration  of  the  text  of  the  second  section  serves  to  establish 
that  it  was  intended  to  supplement  the  first  and  to  make  sure  that  by  no 
possible  guise  could  the  public  policy  embodied  in  the  first  section  be  frus- 
trated or  evaded  if  possible,  to  make  the  prohibitions  of  the  act  all  the 
more  complete  and  perfect  by  embracing  all  attempts  to  reach  the  end 
prohibited  by  the  first  section;  that  is,  restraints  of  trade,  by  any  attempt 
to  monopolize  or  monopolization  thereof,  even  though  the  acts  by  which 
such  results  are  attempted  to  be  brought  about  or  are  brought  about  be 
not  embraced  within  the  general  enumeration  of  the  first  section. 

And,  of  course,  when  the  second  section  is  thus  harmonized  with  and 
made,  as  it  was  intended  to  be,  the  complement  of  the  first,  it  becornes 
obvious  that  the  criteria  to  be  resorted  to  in  any  given  case  for  the  purpose 
of  ascertaining  whether  violations  of  the  section  have  been  committed,  is 
the  rule  of  reason,  guided  by  the  established  law  and  by  the  plain  duty  to 
enforce  the  prohibitions  of  the  act,  and  thus  the  pubhc  poUcy  which  its 
restrictions  were  obviously  enacted  to  subserve. 

In  dissenting  from  this  view  Mr.  Justice  Harlan  says ; 

There  are  some  things  in  this  opinion,  and  some  that  are  to  result  from 
this  opinion,  which  I  think  may  very  well  alarm  thoughtful  men,  or  many 
thoughtful  men ;  and  I  am  unwilling  to  let  them  pass  with  any  idea  that  I 
approve  them. 

The  anti-trust  act  of  i8go  was  passed  at  a  time  when  this  country  was 
in  a  state  of  great  unrest,  arising  out  of  enormous  aggregation  of  capital 
in  a  few  hands,  and  arising  out  of  combinations  which  had  their  hands 
upon  the  throat  of  this  country  in  respect  even  to  the  necessities  of  life ; 
and  Congress  had  before  it  the  great  question  as  to  how  these  evils  were 
to  be  remedied,  so  far  as  Congress  had  the  power  to  remedy  them.    The 


254  CORPORATIONS 

question  was :  What  shall  we  do?  They  finally,  after  great  debate  by  able 
statesmen,  passed  the  anti-trust  act  of  1890.  It  provides  in  section  i, 
"That  every  contract,  combination  in  form  of  trust  or  otherwise,  or  con- 
spiracy not  in  restraint  of  trade,  as  the  learned  chief  justice  said  in  one 
part  of  his  remarks,  but  ...  in  restraint  of  trade  among  the  several  states 
and  with  foreign  nations  is  hereby  declared  to  be  illegal." 

Congress  has  nothing  to  do  with  domestic  trade  in  the  states,  but  as  to 
interstate  trade  it  has  a  great  deal  to  do,  and  therefore  it  fell  upon  this 
policy. 

The  men  who  were  in  the  Congress  of  the  United  States  at  that  time 
knew  what  the  common  law  was  about  the  restraint  of  trade.  They  knew 
what  restraints  of  trade  at  common  law  were  lawful  and  what  were  unlaw- 
ful.    But  Congress  said : 

The  surest  way  to  protect  interstate  commerce  is  not  to  start  upon  any 
distinctions  at  aU  as  to  the  kinds  of  trade ;  "every"  contract  in  restraint  of 
trade  among  the  states  is  hereby  declared  to  be  illegal. 

Then,  in  the  second  section : 

"Every  person  who  shall  monopolize  or  attempt  to  monopolize  or  com- 
bine or  conspire  with  any  other  person  or  persons  to  monopolize"  —  Mo- 
nopolize what?  "Any  part  of  interstate  trade  or  commerce  shall  be  liable 
to  the  penalties  prescribed  by  this  act."  What  becomes,  then,  of  the  state- 
ment that  this  act  did  not  condemn  monopoly  in  itself?  Did  not  these  men 
know  what  a  monopoly  was  ?  And  when  Congress  said  that  we  wiU  punish 
any  man  who  monopolizes  or  attempts  to  monopolize  any  part  of  interstate 
commerce,  did  it  not  know  what  it  intended?  That  is  not  all :  "Every  con- 
tract, combination  in  form  of  trust  or  otherwise,  or  conspiracy  in  restraint 
of  trade  or  commerce  among  the  states,  is  hereby  declared  illegal." 

Therefore  Congress  said  to  all  the  people  of  this  country:  "We  are  not 
going  to  bother  the  courts  or  ourselves  with  any  inquiries  as  to  what  con- 
tracts are  in  restraint  of  trade,  reasonably  or  unreasonably.  We  are  not 
going  to  leave  that  to  any  jury.  We  are  not  going  to  leave  that  to  any  cir- 
cuit judge.  We  will  determine  it  as  a  part  of  the  policy  of  the  United  States, 
that,  so  far  as  interstate  trade  is  concerned,  no  body  or  corporation  shall 
make  or  attempt  to  enforce  a  contract,  any  contract,  that  in  any  degree 
restrains  interstate  trade."  Can  anybody  doubt  the  meaning  of  those 
words?  .  .  .  WTiat  occurred  next?  Look  at  this,  step  by  step,  and  I 
shall  get  directly,  to  the  part  of  this  opinion  that  I  say  may  well  alarm  the 
country,  notwithstanding  the  many  good  things  that  are  in  it,  magnificently 
said. 

In  1896,  fifteen  years  ago,  a  case  w^as  in  this  court  known  as  the  Trans- 
Missouri  case.  The  question  involved  the  construction  as  to  the  scope 
and  meaning  of  that  anti-trust  law.  Who  was  here  to  instruct  the  court 
on  that  occasion?  We  hear  a  good  deal  about  the  "lamp  of  reason."  We 
hear  that  the  time  has  come  when  we  should  hold  up  the  Hght  of  reason 
and  look  at  this  act ;  as  if  the  men  of  that  day,  freshly  after  the  passage  of 
the  act,  were  moving  about  in  darkness  and  did  not  know  what  they  were 
doing  or  sa>dng. 

Let  us  see  who  w^ere  the  men  in  the  case.  They  were,  Attorney  General 
Harmon,  W.  F.  Guthrie,  John  F.  Dillon,  James  C.  Carter,  Edward  J. 
Phelps,  Lloyd  W.  Bowers,  and  John  G.  Johnson. 


CORPORATIONS  255 

Justice  Harlan  then  quotes  extensively  from  this  case,  including 
the  quotations  given  above.  He  also  quotes  from  the  Joint  Traffic 
case,  showing  that  that  case  reaffirmed  the  Trans-Missouri  case  after 
the  fullest  argument  by  the  same  distinguished  attorneys  with  the 
help  of  Senator  Edmunds,  and  after  the  fullest  consideration  of  the 
same  views  of  Mr.  Justice  White  in  his  dissenting  opinion,  and  still 
further,  after  a  rehearing,  for  a  third  time  the  majority  of  the  court 
held  the  same.     He  adds : 

If  you  will  take  the  trouble  to  look  through  the  Federal  Reporter  you 
will  find  that  possibly  nearly  every  Federal  court  in  this  country  has  accepted 
those  original  decisions  as  the  final  decision  of  this  court  as  to  the  meaning 
of  the  act  of  Congress. 

Now  it  is  laid  down  in  some  of  the  cases,  and  it  is  common  sense,  that 
this  court  is  bound  to  know  what  everybody  else  in  the  community  knows, 
and  therefore  I  say,  without  hesitation,  that  everybody  knows  that  there 
has  not  been  a  session  of  Congress  since  1896,  when  that  original  opinion 
was  deHvered  but  that  somebody,  taking  the  opposite  view  from  what  the 
court  has  said,  has  appHed  to  Congress  to  get  that  law  amended ;  but  it 
never  has  been  amended,  and  there  is  not  a  man  in  the  country  to-day  who 
does  not  know  that  it  never  will  be  amended  by  the  Congress  of  the  United 
States  to  mean  what  they  wanted  Congress  to  have  it  mean,  and  which 
Congress  refused  to  have  it  mean ;   to  get  the  courts  so  to  construe  it. 

In  the  not  very  short  life  that  I  have  passed  in  this  capital  and  the 
public  service  of  the  country  the  most  alarming  tendency  of  this  day,  in 
my  judgment,  so  far  as  the  safety  and  integrity  of  our  institutions  are  con- 
cerned, is  the  tendency  to  judicial  legislation,  so  that,  when  men  having 
vast  interests  are  concerned  and  they  cannot  get  the  law-making  power  of 
the  country  which  controls  it  to  pass  the  legislation  they  desire,  the  next 
thing  they  do  is  to  raise  the  question  in  some  case,  to  get  the  court  so  to 
construe  the  Constitution  or  the  statutes  as  to  mean  what  they  want  it  to 
mean.     That  has  not  been  our  practice. 

Although  it  is  usually  said  that  debates  in  a  legislative  body  may 
not  be  resorted  to  to  determine  the  meaning  of  a  statute,^  yet  the 
reports  of  committees  may  be.^  It  is,  however,  proper  for  the  pur- 
poses of  review  to  look  into  the  proceedings  of  Congress. 

Section  i,  of  the  original  bill  ^  introduced  by  Senator  Sherman  read : 

That  all  arrangements,  contracts,  agreements,  trusts,  or  combinations 
between  persons  or  corporations  made  with  a  view,  or  which  tend,  to  prevent 
full  and  free  competition  in  the  importation,  transportation,  or  sale,"  etc., 
and  "all  arrangements,  contracts,  agreements,  trusts,  or  combinations  be- 
tween persons  or  corporations  designed,  or  which  tend,  to  advance  the  cost 
to  the  consumer  of  any  such  articles,  are  hereby  declared  to  be  against 
public  policy,  unlawful  and  void. 

'  U.S.  vs.  Trans-Missouri  Freight  Ass'n,  i66  U.S.  318. 

^  Church  of  Holy  Trinity  vs.  U.S.,  143  U.S.  457. 

»5ist  Cong,  ist  Sess.  Dec.  4,  1889,  Senate  Bill  No.  i,  Bills  &  Debates,  p.  69. 


256  CORPORATIONS 

The  Senator  said : 

It  does  not  announce  a  new  principle  of  law,  but  applies  old  and  well 
recognized  principles  of  the  common  law  to  the  complicated  jurisdiction  of 
our  State  and  Federal  Government.  Similar  contracts  in  any  State  in  the 
Union  are  now  by  the  common  or  statute  law,  null  and  void.  .  .  .  The 
purpose  of  his  bill  is  to  enable  the  courts  of  the  United  States  to  apply  the 
same  remedies  against  combinations  which  injuriously  affect  the  interests 
of  the  United  States  that  have  been  applied  in  the  several  States  to  protect 
local  interests. 

This  Section  (i)  will  enable  the  Courts  of  the  U.  S.  to  restrain,  Umit, 
and  control  such  combinations  as  interfere  injuriously  with  our  foreign  and 
interstate  commerce  to  the  same  extent  that  the  state  courts  habitually 
control  such  combinations  as  interfere  with  the  commerce  of  a  State. 

This  bill,  as  I  would  have  it,  has  for  its  single  object  to  invoke  the  aid 
of  the  courts  of  the  United  States  to  deal  with  the  combinations  described 
in  the  first  section  when  they  affect  injuriously  our  foreign  and  interstate 
commerce  and  our  revenue  laws,  and  in  this  way  to  supplement  the  enforce- 
ment of  the  estabUshed  rules  of  the  common  and  statute  law  by  the  courts 
of  the  several  States  in  dealing  with  combinations  that  affect  injuriously  the 
industrial  liberty  of  the  citizens  of  these  states. 

This  bill  does  not  seek  to  cripple  combinations  of  capital  and  labor,  the 
formation  of  partnerships  or  of  corporations,  but  only  to  prevent  and 
control  combinations  made  with  a  view  to  prevent  competition,  or  for  the 
restraint  of  trade,  or  to  increase  the  profits  of  the  producer  at  the  cost  of 
the  consumer.  It  is  the  unlawful  combination,  tested  by  the  rules  of  the 
common  law  and  human  experience,  that  is  aimed  at  by  this  bill,  and  not 
the  lawful  and  useful  combinations. 

The  bill  "does  not  interfere  with  any  lawful  business  in  the  United 
States,  w^hether  conducted  by  a  corporation  or  a  partnership  or  an 
individual.  It  deals  only  with  unlawful  combinations,  unlawful  by 
the  code  of  any  law  of  any  civilized  nation  of  ancient  or  modern  times." 

The  Senator  further  refers  to  and  quotes  from  the  cases  referred  to 
below.  After  the  bill  was  debated  for  several  weeks  in  the  Senate 
it  was,  with  numerous  proposed  amendments,  referred  to  the  Judi- 
ciary Committee  composed  of  many  of  the  distinguished  lawyers  of 
the  country. 1  They  reported  the  bill  back  in  its  present  form  by 
Senator  Edmunds.^     Senator  Hoar  of  the  committee  said : 

We  have  affirmed  the  old  doctrine  of  the  common  law  in  regard  to  all 
interstate  and  international  commercial  transactions,  and  have  clothed 
the  United  States  courts  with  authority  to  enforce  that  doctrine  by  injunc- 
tion. We  have  put  in  also  a  grave  penalty.^  And  Senator  Edmunds 
said: 

We  would  frame  a  bill  that  should  be  clearly  within  our  Constitu- 
tional power,  that  we  should  make  its  definition  out  of  terms  that  were  well 

1  Bills  &  Debates,  p.  303.  ^  Ibid.  306.  'Ibid.  311. 


CORPORATIONS  257 

known  to  the  law  already,  and  would  leave  it  to  the  courts  in  the  first  in- 
stance to  say  how  far  they  could  carry  it  or  its  definitions  as  applicable  to 
each  particular  case  as  it  might  arise. ^ 

And  Senator  Edmunds  said  in  reference  to  monopoly  "that  we 
studied  it  with  whatever  little  ability  we  had,  and  the  best  answer  I 
can  make  is  to  read  from  Webster's  Dictionary  the  definition  of  the 
verb  *  to  monopolize ' :  '  i.  To  purchase  or  obtain  possession  of  the  whole 
of,  as  a  commodity  or  goods  in  market,  with  the  view  to  appropriate  or 
control  the  exclusive  sale  of;  as  to  monopolize  sugar  or  tea.'  Like  the 
Sugar  Trust.  One  man,  if  he  had  capital  enough,  could  do  it  just  as 
well  as  two.  '2.  To  engross  or  obtain  by  any  means  the  exclusive  right 
of,  especially  the  right  of  trading  to  any  place,  or  within  any  country  or 
district;  as  to  monopolize  the  India  or  Levant  trade.'  The  old  definition. 
.  .  .  We  thought  we  had  done  the  right  thing  in  providing,  in  the 
very  phrase  we  did,  that  if  one  person  instead  of  two,  by  a  combina- 
tion, if  one  person  alone,  as  we  have  heard  about  the  wheat  market 
in  Chicago,  for  instance,  did  it,  it  was  just  as  offensive  and  injurious 
to  the  public  interests  as  if  two  had  combined  to  do  it."  ^ 

Senator  Edmunds'  definition  of  monopoly  should  be  noted,  es- 
pecially the  first,  —  purchase  of  the  whole  commodity  to  control  its 
sale.  He,  as  does  the  Chief  Justice,  assumes  that  the  second  defini- 
tion given,  is  the  old  one ;  this  is  a  mistake,  it  only  goes  back  to  Lord 
Coke ;  the  other,  the  first  one,  back  to  Aristotle,  —  and  literally 
means  a  "sole  seller."     Aristotle  says: 

Thales,  the  Milesian  philosopher,  was  reproached  for  his  poverty,  but 
he  knew  by  his  skill  in  the  stars  while  it  was  yet  winter  that  there  would 
be  a  great  harvest  of  olives  in  the  coming  year ;  so  having  a  little  money,  he 
gave  deposits  for  the  use  of  all  the  olive-presses  in  Chios  and  Miletus, 
which  he  hired  at  a  low  price  because  no  one  bid  against  him.  When  the 
harvest  time  came,  and  many  wanted  them  all  at  once  and  of  a  sudden, 
he  let  them  out  at  any  rate  he  pleased,  and  made  a  quantity  of  money.  He 
is  supposed  to  have  given  striking  proof  of  his  wisdom,  but,  as  I  was  saying, 
his  device  for  getting  money  is  nothing  but  the  creation  of  a  monopoly. 

So  too,  "there  was  a  man  of  Sicily,  who  having  money  deposited 
with  him,  bought  up  all  the  iron  from  the  iron  mines ;  afterwards, 
when  the  merchants  from  their  various  markets  came  to  buy,  he  was 
the  only  seller,  and  without  much  increasing  the  price  he  gained  200 
per  cent.  Which  when  Dionysius  heard,  he  told  him  he  might  take 
away  his  money,  but  that  he  must  not  remain  in  Syracuse.  He  had 
the  same  idea  as  Thales ;  they  both  contrived  to  create  a  monopoly 
for  themselves.     And  statesmen  ought  to  know  these  things."  ^ 

The  foregoing  statements  seem  to  confirm  the  view  of  the  Chief 

'  Ibid.  315.  2  Ibid.  p.  324.  '  Politics,  Bk.  I. 


258  CORPORATIONS 

Justice;  this,  however,  is  only  apparent,  and  a  careful  study  of  the 
debates  leads  to  a  different  view,  (i)  Senator  Sherman's  original 
bill  was  aimed  at  "all  arrangements,  contracts,  etc.,  made  with  a 
vieiu,  or  which  tend  to  prevent  full  and  free  competition  "  in  interstate 
and  foreign  commerce ;  it  made  these  illegal,  null  and  void.  (2)  He 
pointed  out  that  the  purchase  of  property  by  one  person  of  another, 
the  formation  of  partnerships  or  corporations,  to  aid  production,  are 
not  combinatiohs  which  prevent  competition  in  the  legal  sense,  — 
they  are  not  contracts  in  restraint  of  trade  within  the  meaning  of  the 
common  law.  (3)  He  cited  cases:  "that  all  combinations  for  the 
purpose  of  raising  or  controlling  prices  of  merchandise  or  any  of  the 
necessaries  of  life  are  monopolies,"  —  matches  here,  —  and  "it  is  no 
answer  to  say  that  it  has  reduced  the  price,"  for  it  can  "at  any  time 
raise  the  price  to  an  exorbitant  degree ; "  ^  a  secret  partnership  among 
the  grain  dealers  in  a  town,  —  each  firm  apparently  conducting  its 
own  business  as  if  no  such  partnership  existed,  —  "to  control  the  price 
of  grain,  costs  of  storage  and  expense  of  shipment  at  such  town  is  in 
restraint  of  trade,  and  void ; "  ^  the  division  of  the  city  of  Chicago  by 
agreement  between  two  gas  companies,  "allowing  each  the  exclusive 
right  of  supplying  gas  therein  for  100  years,  and  stipulating  that 
neither  would  interfere  with  the  business  of  the  other  in  its  own  terri- 
tory," although  "it  involved  a  partial  restraint  of  trade,"  was  void  as 
between  "corporations  engaged  in  a  public  business  in  which  the 
public  have  an  interest,"  ^  and  the  purchase  of  a  majority  of  the  capital 
stock  of  the  four  competing  gas  companies  in  Chicago,  by  a  new  cor- 
poration incorporated  for  "  the  manufacture,  sale  and  distribution  of 
gas,  and  to  purchase  and  hold  the  capital  stock  of  any  gas  company  in 
Chicago  or  elsewhere,"  builds  up  "  a  virtual  monopoly  in  the  manu- 
facture and  sale  of  gas,"  which  is  unlawful  and  the  corporation  can 
be  dissolved ;  *  and  "  any  combination  the  tendency  of  which  is  to 
prevent  competition  in  its  broad  and  general  sense,  and  thus  at  will 
enhance  prices  to  the  detriment  of  the  public  is  a  legal  monopoly."^ 
(4)  These  \aews  were  not  controverted,  denied  or  questioned,  but 
seemed  to  be  taken  for  granted  by  all.  And  further  the  debates  were 
to  assume,  that  for  practical  purposes,  any  contract  "made  with  the 
view  and  directly  tending  to  prevent  full  and  free  competition"  in 
interstate  commerce,  since  it  would  affect  the  people  of  at  least  two 
states,  and  might  all  of  them,  —  would  be  inherently  in  unreasonable 
restraint  of  trade  by  the  rules  of  the  conrmion  law.  (5)  But  the  Sena- 
tor also  proposed  that  the  policy  of  the  States  not  only  as  indicated 
by  the  decisions  but  by  their  statutes  as  well,  making  these  things 

*  Richardson  vs.  Buhl  (i88g)  77  Mich.  632. 
'  Craft  vs.  McConoughy  (1875)  79  111.  346. 

'Chicago  Gas  L.  Co.  vs.  People's  Gas  L.  Co.,  121  111.  531. 

*  People  vs.  Chicago  Gas  Trust  Co.  (1889)  130  111.  268. 

'  Mr.  Justice  Barrett,  in  People  vs.  North  River  Sugar  Ref.  Co.,  2  Abb.  N.  C.  164. 


CORPORATIONS  259 

criminal  and  tortious,  should  be  supplemented  by  adopting  a  like 
policy  by  the  Federal  government  in  reference  to  interstate  and  foreign 
commerce.  (6)  The  debate  was  mostly  upon  the  remedies  for  these 
wrongs,  —  should  they  be  made  criminal,  should  they  be  enjoined  at 
the  suit  of  the  United  States,  should  a  person  not  a  party  to  the  re- 
straining contract  have  a  civil  remedy  for  the  damage  done  him  or 
should  these  things  be  held  null,  void  and  unenforcible,  by  the  parties 
to  them,  as  at  common  law?  No  one  proposed  the  latter  alone,  but 
all  desired  to  provide  one  or  more  of  the  other  remedies ;  and  this  is 
why  the  original  bill  was  referred  to  the  Judiciary  Committee,  and 
why  it  reported  the  bill  in  its  present  form  —  to  extoid  the  policy  of 
the  states  to  interstate  and  foreign  commerce,  —  to  make  violations 
thereof  criminal,  clothe  the  Federal  courts  with  power  to  enforce  this 
policy  by  injunction,  and  give  a  civil  remedy  to  a  person  injured  by 
its  violation.  (7)  So  too,  because  the  bill  said  nothing  about  mo- 
nopoly, and  would  not  prevent  cornering  the  market,  was  another 
objection  to  it ;  hence  the  judiciary  committee  added  the  monopoly 
section.  If  this  is  correct,  then  it  seems  probable  that  "every  contract," 
was  deliberately  used  to  mean  what  it  says ;  and  this  seems  to  be  more 
than  confirmed  by  the  subsequent  history  set  forth  in  Justice  Har- 
lan's opinion. 

It  is  not  quite  clear  therefore  why  the  court  should  in  a  case  not 
requiring  it,  and  when  the  question  was  touched  upon  only  incidentally 
in  the  briefs,  —  because  it  had  been  considered  practically  settled  for 
fifteen  years,  suddenly  reverse  itself,  and  mount  that  "unruly  horse" 
—  public  policy  —  which  no  court  has  ever  yet  successfully  ridden 
and  which  will  vary  as  it  has  heretofore,  in  matters  of  this  kind,  on 
the  equity  side  "with  the  length  of  the  chancellor's  foot,"  and  on  the 
legal  side  from  Hull's  "per  Dieu,  if  the  plaintiff  were  here,  he  should 
go  to  prison  till  he  paid  a  fine  to  the  King,"  because  he  took  a  bond 
from  a  dyer  not  to  use  his  dyer's  craft  in  town  for  half  a  year,^  to  the 
House  of  Lords'  conclusion  that  a  combination  to  engross  all  the  tea 
trade  between  Shanghai  and  Europe,  to  the  exclusion  of  the  plaintiff, 
was  not  unlawful,  —  so  as  to  give  the  plaintiff  an  action  for  damages ;  ^ 
the  court  here,  however,  was  careful  to  point  out  that  while  this  was 
a  contract  in  restraint  of  trade,  it  was  not  unlaufiil,  so  as  to  give  a  third 
party  an  action  for  damages ;  they  did  not  hold  that  it  was  a  contract 
in  "reasonable  restraint  of  trade,"  so  that  one  party  to  it  would  have 
had  an  action  against  another  for  damages  for  refusing  to  abide  by  it ; 
they  probably  would  have  refused  to  enforce  it  so,  because  it  was  in 
unreasonable  restraint  of  trade.'  And  it  is  safe  to  say  that  had  the 
case  arisen  before  1844,  the  court  would  hardly  have  held  under  the 

» Dier's  Case  (1415)  Y.  B.  2  H.  V.  f.  s,  pi.  26. 

'  Mogul  Steamship  Co.  vs.  McGregor  (1892)  A.  C.  25. 

^Nordenfelt  vs.  Maxim  &c.  Co.  (1894)  A.  C.  535. 


26o  CORPORATIONS 

laissez  faire  rule  of  reason  so  fashionable  at  the  time  that  the  English 
statutes  did  not  apply  as  they  before  had  been  interpreted.  It  would 
have  been  left  to  Parliament,  as  it  was,  to  abrogate  the  statutes  and 
establish  a  new  policy. 

However,  if  hereafter,  the  common  law  rule  of  reason  is  to  apply, 
and  though  this  will  lead  to  a  sea  of  uncertainty,  if  one  can  judge  by 
the  conflict  in  the  views  of  the  members  of  the  court,  perhaps  the 
ultimate  result  will  not  be  greatly  different,  except  to  throw  a  greater 
burden  on  the  government  in  getting  at  and  establishing  the  facts  in 
each  case.  There  is  not  much  in  the  common  law  rule  of  reason, 
except  its  uncertainty,  to  give  comfort  to  any  of  the  large  trusts  to 
classify  themselves  among  the  sheep  instead  of  among  the  goats. 
The  best  statement  of  the  common  law,  so  far  as  it  can  be  stated  at 
all,  is  that  made  by  President  Taft,  when  as  judge  he  rendered  the 
decision  in  the  Addyston  Pipe  Case.^    He  said,  citing  cases  in  the  note : 

Covenants  in  partial  restraint  of  trade  are  generally  upheld  as  valid  when 
they  are  agreements ;  (i)  by  the  seller  of  property  or  business  not  to  compete 
with  the  buyer  in  such  a  way  as  to  derogate  from  the  value  of  property  or 
business  sold;  (2)  by  a  retiring  partner  not  to  compete  with  the  tirm ;  (3) 
by  a  partner,  pending  the  partnership,  not  to  do  anything  to  interfere,  by 
competition  or  otherwise,  with  the  business  of  the  firm ;  (4)  by  the  buyer 
of  property  not  to  use  the  same  in  competition  with  the  business  retained 
by  the  seller;  and  (5)  by  an  assistant,  servant  or  agent  not  to  compete 
with  his  master  or  employer  after  the  expiration  of  his  time  of  service. 
Before  such  agreements  are  upheld,  however,  the  court  must  find  that  the 
restraints  attempted  thereb}^  are  reasonably  necessary  (1,2  and  3)  to  the 
enjoyment  by  the  buyer  of  the  property,  good-will  or  interest  in  the  part- 
nership bought ;  or  (4)  to  the  legitimate  ends  of  the  existing  partnership ; 
or  (5)  to  the  prevention  of  possible  injury  to  the  business  of  the  seller  from 
use  by  the  buyer  of  the  thing  sold ;  or  (6)  to  protection  from  the  danger 
of  loss  to  the  employer's  business  caused  by  the  unjust  use  on  the  part  of 
the   employee  of   the  confidential  knowledge  acquired  in  such  business.^ 

>  United  States  vs.  Addyston  &  Co.  (i8g8)  85  Fed.  271. 

2  First  class:  Mitchel  vs.  Reynolds,  i  P.  Wms.  181;  Fowle  vs.  Parke,  131  U.S.  88,  9 
Sup.  Ct.  658;  Nordenfelt  vs.  Maxim-Nordenfelt  Co.  [1894],  App.  Cas.  534;  Rousillon  vs. 
Rousillon,  14  Ch.  Div.  351 ;  Cloth  Co.  vs.  Lorsont,  L.  R.  g  Eq.  345 ;  Whittaker  vs.  Howe, 
3  Beav.  383;  Match  Co.  vs.  Roeber,  106  N.Y.  473,  13  N.E.  419;  Tode  vs.  Gross,  127  N.Y. 
480,  28N.E.  469;  Bealw.  Chase,  31  Mich.  490;  Hubbard  2'5.  Miller,  27  Mich.  15;  National 
Ben  Co.  vs.  Union  Hospital  Co.,  45  Minn.  272,  47  N.W.  Rep.  806;  Whitney  vs.  Slayton, 
40  Maine  224;  Pierce  vs.  Fuller,  8  Mass.  223;  Richards  vs.  Seating  Co.,  87  Wis.  503,  58 
N.W.  Rep.  787. 

Second  class:  Tallis  vs.  Tallis,  i  El.  &  Bl.  391,  and  Lange  vs.  Werk,  2  Ohio  St.  520. 

Third  class:  Machinery  Co.  vs.  Dolph,  138  U.S.  617,  11  Sup.  Ct.  412;  Machiner>'  Co. 
vs.  Dolph,  28  Fed.  Rep.  553 ;  and  Matthews  vs.  Associated  Press,  136  N.Y.  333,  32  N.E. 
Rep.  981. 

Fourth  class:  American  Strawboard  Co.  vs.  Haldeman  Paper  Co.,  83  Fed.  Rep.  619; 
and  Hitchcock  vs.  Anthony,  83  Fed.  Rep.  779,  both  decisions  of  this  court ;  Navigation  Co. 
vs.  Winsor,  20  Wall.  64;  Dunlop  vs.  Gregory,  10  N.Y.  241;  Hodge  vs.  Sloan,  107  N.Y. 
414,  17  N.E.  Rep.  335. 

Fifth  class:  Homer  115.  Ashford,  3  Bing.  322;  Horner  vs.  Graves,  7  Bing.  735;  Hitch- 
cock vs.  Coker,  6  Adol.  &  E.  438;  Ward  vs.  Byrne,  s  Mees.  &  W.  547  ;   Dubowski  vs.  Gold- 


CORPORATIONS  261 

But  where  the  sole  object  of  both  parties  in  making  the  contract  as  ex- 
pressed therein  is  merely  to  restrain  competition,  and  enhance  or  maintain 
prices,  it  would  seem  that  there  was  nothing  to  justify  or  excuse  the  re- 
straint, that  it  would  necessarily  have  a  tendency  to  monopoly  and  there- 
fore would  be  void.  In  such  a  case  there  is  no  measure  of  what  is  necessary 
to  the  protection  of  either  party  except  the  vague  and  varying  opinion  of 
judges  as  to  how  much,  on  principles  of  political  economy,  men  ought  to  be 
allowed  to  restrain  competition.  There  is  in  such  contracts  no  main  lawful 
purpose  to  subserve  which  partial  restraint  is  permitted,  and  by  which 
its  reasonableness  is  measured,  but  the  sole  object  is  to  restrain  trade  in 
order  to  avoid  the  competition  which  it  has  always  been  the  policy  of  the 
common  law  to  foster.  1 

And  in  the  very  recent  case  of  Dr.  Miles  Med.  Co.  vs.  John  D.  Park 
Sons  Co., 2  Mr.  Justice  Hughes  says: 

But  agreements  or  combinations  between  dealers,  having  for  their  sole 
purpose  the  destruction  of  competition  and  the  fixing  of  prices,  are  injurious 
to  the  pubUc  interest  and  void.  They  are  not  saved  by  the  advantages 
which  the  participants  expect  to  derive  from  the  enhanced  price  to  the 
consumer. 

The  decisions  of  the  Supreme  Court  under  the  Anti-trust  act  may 
be  summarized  and  classified  as  follows :  (i)  Purchase  or  acquisition 
of  stock  of  competing  corporations  by  one  of  the  competitors  for  the 
purpose  of  preventing  competition  or  creating  a  monopoly. 

Of  this  class  are  the  Sugar  Trust  cases.  In  the  Knight  case,^  the 
American  Sugar  Refinery  Company,  being  in  control  of  a  large  part 
of  the  manufactories  of  refined  sugar  in  the  United  States,  purchased 
all  the  stock  of  four  competing  Philadelphia  sugar  refineries,  giving 
the  American  Co.  a  practical  monopoly  of  the  refining  and  sale  of 
sugar  in  the  United  States;  it  was  held,  by  Fuller,  C.  J.,  that  "con- 
ceding the  existence  of  a  monopoly  in  the  manufacture  is  established," 
it  cannot  be  suppressed  in  the  mode  attempted  in  this  bill,  because 
manufacturing  is  not  commerce.     Harlan,  J.,  dissents. 

In  the  Kissel  case,'*  the  same  American  Sugar  Refining  Co.,  by 

stein  (1896)  I  Q.  B.  478;  Peels  vs.  Saalfeld  (1892)  2  Ch.  149;  Taylor  vs.  Blanchard,  13 
Allen  370;  Keeler  vs.  Taylor,  53  Pa.  St.  467  ;  Herreshoff  vs.  Boutineau,  17  R.  I.  3,  19  Atl. 
Rep.  712. 

1  Citing:  People  vs.  Sheldon,  is9  N.Y.  251 ;  Morris  Run  Coal  Co.  vs.  Barclay  Coal  Co., 
68  Pa.  St.  173 ;  Nester  vs.  Brewing  Co.,  161  Pa.  St.  473 ;  Salt  Co.  vs.  Guthrie,  35  O.S.  666; 
Anderson  vs.  Jett,  89  Ky.  375;  Chapin  vs.  Brown,  79  111.  346;  Craft  vs.  McConoughy,  79 
111.  346;  More  vs.  Bennett,  1.^0  111.  69;  .\ssociation  i'?.  Niezerowski,  95  Wis.  129;  Vulcan 
Powder  Co.  vs.  Hercules  Powder  Co.,  96  Cal.  510 ;  Oil  Co.  is.  Adone,  83  Tex.  650 ;  Associa- 
tion vs.  Kock,  14  La.  Ann.  16S;  Hilton  vs.  Eckersley,  6  El.  &  Bl.  47 ;  Urmston  vs.  White- 
legg,  63  L.  T.  (N.  S.)  455. 

See  also  Hartman  vs.  Park  &  Sons,  14s  Fed.  358;  Page,  Contracts,  Sect.  373  ;  Ripley, 
Trusts,  Pools  &  Corporations,  chaps,  ix,  x.  8  Mkfi.  L.  Rev.  298  (J.  C.  Knowlton) ;  6 
Mkh.  L.  Rev.  I  (S.  T.  Miller) ;   3  Mich.  L.  Rev.  119  (D.  M.  Fredericksen). 

2  (191 1),  31  S.C.  376  on  385. 

3  U.S.  vs.  E.  C.  Kni-ht  Co.  (1895)  156  U.S.  i ;  60  Fed.  934. 

*  U  S.  vs.  Kissel  (1910)  — U.S.  —  31  S.C.  124;   173  Fed.  382. 


262  CORPORATIONS 

Kissel,  its  agent,  without  disclosing  his  principal,  loaned  a  large  sum 
of  money  to  S.  (who  owned  more  than  half  the  stock  of  a  competing 
Pennsylvania  Co.),  and  took  this  stock,  with  a  power  of  attorney  to 
vote  upon  it,  as  collateral  security  for  the  loan,  which  was  to  last  for 
one  year.  S.  did  not  know  the  American  Co.  was  back  of  K.,  and  was 
dependent  upon  the  income  of  this  stock  to  repay  the  loan.  K.,  at 
the  instigation  of  the  American  Co.,  voted  to  close  the  Pennsylvania 
Co.,  and  thereby  destroy  its  business,  and  ruin  S.  Held,  this  was  an 
illegal  conspiracy,  \iolating  the  Anti-trust  act,  —  "a  partnership  for 
a  criminal  purpose,"  —  per  Holmes,  J.,  no  dissent. 

Perhaps  in  this  class  should  also  be  placed  the  Northern  Securities 
case,  and  the  case  under  review.     See  No.  (3)  below. 

(2)  Purchase  or  lease  of  competing  properties  %\'ith  covenant  from 
the  seller  or  lessor  that  he  will  not  compete  with  the  purchaser. 

In  the  Packet  case,^  a  seller  of  two  river  steamboats  plying  between 
two  places  and  the  intermediate  points  in  the  State  of  Ohio  on  the 
Ohio  river,  agreed  not  to  engage  in  the  packet  business  for  five  years 
between  the  same  points,  —  held,  Holmes,  J.,  even  if  there  is  some 
interference  with  interstate  commerce,  it  "is  insignificant,  and  inci- 
dental and  not  the  dominant  purpose  of  the  agreement"  which  relates 
to  intrastate  trafiic  only,  and  does  not  violate  the  Anti-trust  act.  No 
dissent. 

In  the  Cotton  Compress  case,^  the  lessee  already  owned  and  con- 
trolled a  large  number  of  the  cotton  compresses  in  the  southern  states ; 
the  lessor  compress  company  leased  all  its  property  and  good  will  to  the 
foreign  lessee  company,  with  a  covenant  to  discourage  all  competition 
with  the  latter,  and  itself  refrain  from  engaging  in  compressing  cotton 
within  50  miles  of  any  plant  operated  by  the  lessee,  —  this  lease  being 
made  in  pursuance  of  a  plan  to  draw  into  one  control  the  compression 
business  of  the  cotton  producing  states.  Held,  McKenna,  J.,  violates 
Anti-trust  act.     No  dissent. 

The  Banana  trust,  noted  below  (7),  was  of  this  character  also. 

(3)  Organization  of  a  trust  or  corporation  by  former  competing 
concerns,  or  by  their  shareholders,  to  take  over  the  property  or  stock 
of  such  concerns  in  order  to  prevent  competition. 

Of  this  class  is  the  Northern  Securities  case,^  where  the  Securities 
Company  was  organized  with  $400,000,000  of  capital  stock,  — 
$211,000,000  of  which  it  exchanged  with  the  stockholders  of  the 
Great  Northern  Railroad  Co.,  for  practically  all  of  its  Si  18,000,000 
capital  stock,  and  likewise  exchanged  8177,000,000  more  of  its  stock 
with  the  shareholders  of  the  Northern  Pacific  Railroad  Co.,  for  prac- 
tically all  of  its  $154,000,000  capital  stock,  —  giving  the  former  share- 

1  Cincinnati,  P.  B.  &c.  Packet  Co.  vs.  Bay  (1906)  200  U.S.  179. 

*  Shawnee  Compress  Co.  vs.  Anderson  (1908)  209  U.S.  423 ;  28  S.C.  572. 

^U.S.  vs.  Northern  Securities  Co.  (1904)  193  U.S.  197;  120  Fed.  721. 


CORPORATIONS  263 

holders  about  $388,000,000  of  the  Securities'  stock,  while  the  latter 
company  became  the  sole  shareholder  in  the  two  railroad  companies, 
with  power  to  control  them  and  prevent  the  continuance  of  competi- 
tion between  their  5500  miles  of  lines.  Held,  Harlan,  Bro\\'n, 
McKenna,  Day,  and  Brewer,  that  this  violated  the  Anti-trust  act. 
Fuller,  C.  J.,  Peckham,  Holmes,  and  White,  JJ.,  dissenting  on  the 
ground  that  exchange  of  shares  was  purchase  of  property,  and  not  a 
combination  or  contract  in  restraint  of  interstate  commerce.  Com- 
pare the  Sugar  trust  cases,  supra,  under  (i). 

In  the  subsequent  case,'  arising  out  of  the  distribution  of  the  assets 
of  the  Securities  Co.,  under  the  decree  in  the  original  case,  it  was  held 
that  there  was  a  real  purchase  of  the  stock  of  the  railroad  companies 
by  the  Securities  Co.,  and  the  $ii8,ooo,coo  stock  of  Great  Northern, 
and  $154,000,000  stock  of  Northern  Pacific  should  not  be  returned 
to  the  original  owners  respectively  from  whom  they  were  received, 
but  that  the  two  stocks  should  be  di\dded  pro-rata,  among  all 
the  shareholders  in  the  Securities  company  who  should  surrender 
99  per  cent  of  the  Securities  stock.  Opinion  by  Fuller,  C.  J. 
No  dissent. 

The  case  under  review  belongs  to  this  class. 

(4)  Agreements  to  fix  or  maintain  transportation  rates  on  inter- 
state traffic. 

The  cases  here  are  the  freight  association  cases,^  sufficiently  re- 
viewed above.  The  Securities  case  belongs  here  too,  because  the 
majority  of  the  court  held  that  even  if  there  was  a  sale  and  purchase 
of  property,  that  would  not  purge  the  plain  intent  to  restrain  com- 
petition between  competing  railroads. 

In  the  Packet  case,  supra,  where  the  purchaser  of  the  steamboats 
agreed  to  maintain  the  present  rates  primarily  at  least  on  intrastate 
traflSc,  there  was  no  violation  of  the  Anti-trust  act. 

(5)  Associations  or  agreements  between  former  competitors  not  to 
compete,  —  yet  otherwise  retaining  control  over  their  own  business. 

The  Live  Stock  exchanges  at  Kansas  City,  where  the  State  line  runs 
through  the  stock  yards  were  held  not  to  violate  the  Anti-trust  act. 
In  the  Hopkins  case,'  an  association  was  formed  among  those  whose 
business  it  was  to  receive  consignments  of  live  stock  from  various 
states,  make  advances  to  their  owners,  feed  and  care  for  the  stock, 
prepare  them  for  sale,  and  sell  them  on  commission,  remitting  to  the 
owners  the  balance  after  deducting  costs,  expenses,  and  commissions ; 
they  fixed  uniform  commissions,  and  agreed  to  deal  with  no  one  who 
violated  rules  relating  to  employment  of  agents  and  sending  prepaid 

'  Harriman  vs.  Northern  Securities  Co.  (1905)  197  U.S.  244;  134  Fed.  331;  132  Fed. 
464. 

«U.S.  vs.  Trans-Mo.  Freight  Ass'n  (1897)  166  U.S.  290;  58  Fed.  58;  53  Fed.  440; 
U.S.  vs.  Joint  Traffic  Ass'n  (1898)  171  U.S.  505 ;   89  Fed.  1020  ;  76  Fed.  895. 

'Hopkins  vs.  U.S.  (1998)  171  U.S.  578;  84  Fed.  1018,  82  Fed.  529. 


264  CORPORATIONS 

telegrams.  Held,  their  business  was  not  interstate  commerce,  —  Peck- 
ham,  J.,  (Harlan,  J.,  dissenting). 

In  the  Anderson  case,^  the  yard  live  stock  traders,  who  themselves 
bought  and  sold  live  stock  at  the  Kansas  City  stock  yards,  associated 
together,  and  agreed  not  to  recognize  any  one  not  a  member  as  a 
yard  trader,  or  employ  any  one  to  buy  or  sell  for  him  unless  he  had 
a  certificate  from  the  exchange,  or  pay  any  buyer  or  seller  any  fee  for 
buying  or  selling  for  him.  Held,  such  agreement  was  not  in  restraint 
of,  nor  an  attempt  to  monopolize,  interstate  commerce,  even  if  its 
members  are  engaged  in  such  commerce. 

In  the  Pipe  Trust  cases,^  it  was  held  that  an  agreement  among  a 
large  number  of  the  companies  manufacturing  iron  pipe  in  the  United 
States,  fixing  prices  to  the  public  by  a  committee,  dividing  territory, 
and  pooling  profits,  violates  the  Anti-trust  act,  —  per  Peckham,  J. 
No  dissent.  The  same  combination  was  likewise  held  to  be  illegal 
in  the  Chattanooga  Foundry  Works  case,^  by  Holmes,  J.,  two  of 
the  court  dissenting  on  other  matters. 

In  the  Meat  Trust  case,^  it  was  held  that  a  combination  of  the 
dominating  members  of  dealers  in  fresh  meats  throughout  the  United 
States  to  bid  in  conjunction  with  and  not  against  one  another  for  live 
stock,  in  order  to  regulate  prices,  to  restrict  shipments,  and  to  get  less 
than  lawful  rates  from  railroads,  violates  the  An ti- trust  act,  — 
Holmes,  J.     No  dissent. 

The  Packet  case  is  given  above  imder  (2). 

The  Wall  Paper  trust,^  by  organizing  a  selling  corporation  to  fix 
and  maintain  prices  for  its  members  and  limit  production,  was  as- 
sumed to  be  illegal.  See  below  under  (6).  So  too,  the  Banana  trust. 
See  below  under  (7). 

(6)  Agreements  between  seller  and  buyer  that  the  latter  will  resell 
to  public  only  on  terms  named  by  the  original  seller. 

Thus  where  the  patentee  of  harrows  sold  the  right  to  manufacture 
and  sell  the  same,  to  a  licensee,  and  agreed  to  license  no  one  else,  and 
the  licensee  agreed  to  make  and  sell  the  harrows  at  a  price  fixed  by 
patentee,  and  to  sell  no  others;  the  agreement  does  not  violate  the 
Anti- trust  act,  — ^  Peckham,  J.     No  dissent. 

But  where  the  wholesale  dealers  in  tiles,  etc.,  in  one  state,  associate 
with  the  makers  of  such  tiles  in  other  states,  whereby  the  makers 
agree  not  to  sell  to  non-members  and  the  wholesale  dealers  agree  not 
to  purchase  from  non-members,  and  not  to  sell  at  all  at  less  than  the 
list  prices  agreed  upon,  to  non-members,  —  more  than  50  %  higher 

1  Anderson  vs.  U.S.  (1898)  171  U.S.  604;  82  Fed.  ggS. 

2  Addyston  Pipe  &  Steel  Co.  vs.  U.S.  (1899)  175  U.S.  211 ;  85  Fed.  271 ;   78  Fed.  712. 

3  Chattanooga  F.  &  P.  Works  vs.  Atlanta  (1906)  203  U.S.  390;  27  S.C.  65. 

*  Swift  vs.  U.S.  (1905),  196  U.S.  375  ;   122  Fed.  429. 

s  Continental  Wall  Paper  Co.  vs.  Voight  (1909),  21 2  U.S.  227 ;  29  S.C.  280 ;  148  Fed.  939. 

*  Bement  vs.  National  Harrow  Co.  (1902)  186  U.S.  70. 


CORPORATIONS  265 

than  to  members,  is  an  association  which  violates  the  act,  —  ^  per 
Peckham,  J.     No  dissent. 

However,  a  contract  between  a  board  of  trade  and  a  telegraph 
company,  whereby  the  board  agrees  to  furnish  quotations  of  the 
prices  of  grain,  on  condition  that  the  telegraph  company  will  com- 
municate such  prices  only  to  persons  ha\ing  contractual  relations  with 
and  approved  by  the  board  of  trade,  and  not  to  bucket  shops,  does 
not  violate  the  Anti-trust  act,-  as  a  contract  in  restraint  of  trade,  — 
per  Holmes,  J.  (Harlan,  Brewer,  and  Day,  JJ.,  dissenting). 

In  the  Wall  Paper  trust,  in  addition  to  what  is  stated  above  (5)  the 
selling  agency  fixed  prices  to  wholesalers,  to  retailers,  and  to  the 
public,  and  required  the  wholesalers  to  agree  to  sell  to  retailers  only 
on  the  terms  fixed,  and  the  retailers  to  sell  only  to  the  public  at  the 
prices  fixed  by  the  seller.  Held,  per  Harlan,  J.,  to  \'iolate  Anti-trust 
act  (Holmes,  Brewer  and  White,  JJ.,  dissent  on  the  ground  that  a 
wholesale  dealer  who  had  purchased  a  bill  of  goods  from  the  trust  was 
not  in  a  position  to  contest  the  validity  of  its  existence). 

The  same  sort  of  an  agreement  whereby  the  maker  and  seller  of  a 
proprietary  medicine  made  under  a  secret  process  undertook  to  fix 
the  prices  to  wholesalers,  and  by  them  to  the  retailers,  and  by  the 
latter  to  the  public,  and  that  such  wholesalers  should  sell  only  to  such 
retailers  as  were  approved  by  the  proprietor  \iolates  the  Anti-trust 
act;^   opinion  by  Hughes,  J.  (Holmes,  J.,  dissenting). 

So  too,  in  Bobbs-Merrill  Co.  vs.  Straus,'*  the  district  court  held 
that  Bobbs-Merrill  Co.  could  not  prevent  the  sale  below  a  specified 
price,  of  a  copyrighted  book  by  the  purchaser,  —  the  Book  trust,  com- 
posed of  the  American  Publishers'  Ass'n,  and  the  Am.  Booksellers' 
Ass'n,  a  combination  controlling  the  sale  and  fixing  the  price  of  90 
per  cent  of  the  copyrighted  books,  and  blacklisting  dealers  who  would 
not  come  into  the  association,  —  even  though  it  was  an  unlawful 
trust,  as  held  by  the  court.  This  was  affirmed,  as  a  restraint  on 
alienation,  the  copyright  of  a  book  not  giving  the  same  right  as  a 
patent  of  an  article,  but  the  Supreme  Court  did  not  deem  it  necessary 
to  pass  on  the  validity  of  the  Book  trust. 

(7)  Combinations  to  prevent  others  from  carrying  on  their  trade 
in  the  usual  way. 

By  force,  threats,  \dolence,  and  actual  physical  obstruction,  prevent- 
ing the  movement  of  sleeping  cars  engaged  in  interstate  commerce, 
as  in  the  Debs  case.^  Held,  by  lower  court,  to  violate  the  Anti- 
trust act,  but  affirmed  by  the  Supreme  Court,  on  broader  grounds  as 

'  Montague  &  Co.  w.Lowry  (igo4)  193  U.S.  38;  115  Fed.  27,  io6  Fed.  38,  98,  Fed.  817. 
'  Board  of  Trade  vs.  Christie  &c.  Co.  (1905)  198  U.S.  236;    139  Fed.  496,  120  Fed.  608. 
3  Dr.  Miles  Med.  Co.  vs.  Park  &  Sons  Co.  (1911)  —  U.S.  —  31  S.C.  376;   164  Fed.  803. 
See  Hartman  vs.  John  D.  Park,  145  Fed.  358. 

^210  U.S.  339;  28  S.C.  722;   147  Fed.  is;   139  Fed.  155;   131  Fed.  530. 
'  In  re  Debs  (1895)  158  U.S.  564;  64  Fed.  724. 


266  CORPORATIONS 

interfering  with  the  movement  of  the  mails,  etc.,  —  per  Brewer,  J. 
No  dissent. 

So  too,  a  boycott  by  the  hatters'  union  of  9000  members,  in  com- 
bination with  the  American  Federation  of  Labor  of  1,400,000  mem- 
bers, of  the  manufacturer  of  hats  to  be  transported  and  sold  across 
state  lines  whose  shop  the  Union  seeks  to  unionize,  by  preventing 
purchasers  from  reselling  for  fear  of  strikes,  and  loss  of  customers, 
because  of  the  wide  publication  in  the  Union  papers  of  the  names  of 
unfair  dealers,  is  a  combination  in  restraint  of  interstate  commerce, 
in  violation  of  the  Anti-trust  act,  —  ^  per  Fuller,  C.  J.     No  dissent. 

In  the  Banana  trust  case,'-  the  trust  organized  in  the  United  States, 
with  an  intent  to  control  competition  and  monopolize  the  banana 
trade,  bought  out  many  competitors,  who  promised  not  to  compete, 
acquired  the  stock  of  others,  contracted  with  still  others  limiting  the 
quantity  to  be  purchased,  and  organized  a  selling  corporation  to  fix 
and  maintain  prices.  Plaintiff,  a  United  States  citizen,  acquired  a 
banana  plantation  in  U.  S.  of  Colombia,  and  proceeded  to  construct 
a  railroad  to  it.  The  trust  induced  the  Costa  Rica  government  to 
prevent  by  its  soldiers,  the  plaintiff  from  completing  his  road,  pro- 
cured a  fraudulent  judgment  as  to  the  title  to  the  land,  and  forcibly 
ejected  plaintiff,  and  destroyed  his  business.  Held,  although  the 
parties  were  engaged  in  the  foreign  banana  trade  of  the  United  States, 
the  wrongful  acts  occurred  outside  the  territory  of  the  United  States, 
and  the  Federal  courts  had  no  jurisdiction  to  give  relief, — per  Holmes, 
J.,  all  concur. 

(8)  Miscellaneous. 

A  municipal  ordinance  specifying  that  Trinidad  Lake  asphalt,  a 
foreign  product,  shall  be  used  in  the  pavement  of  a  city  street,  and 
thereby  preventing  competitive  bidding  does  not  \iolate  the  Anti- 
trust act,^  —  per  Day,  J.  No  dissent.  Corporations  are  not  pro- 
tected vmder  the  pro\isions  of  the  5th  amendment  of  the  Constitution 
from  ha\ing  their  agents  testify  or  their  books  produced,  in  a  criminal 
prosecution  against  them  under  the  Anti-trust  act,  on  the  ground 
that  a  criminal  cannot  be  required  to  testify  against  himself ;  this 
privilege  is  personal  to  the  witness  called  on  to  testify.  Such  cor- 
porations, however,  are  protected  against  unreasonable  searches  and 
seizures.^ 

The  facts  show  that  the  defendant  in  the  case  under  review,  has 
been  a  party  to  contracts  or  combinations  held  illegal  under  most  of 
the  foregoing  classes,  but  particularly  of  forming  a  trust  or  combina- 

1  Loewe  vs.  Lawlor  (1907)  208  U.S.  274,  28  S.C.  301 ;   142  Fed.  216,  130  Fed.  633. 

2  American  Banana  Co.  vs.  United  Fruit  Co.  (1909)  213  U.S.  347;  29  S.C.  511;  166 
Fed.  261. 

3  Field  vs.  Barber  Asphalt  Co.  (1904)  194  U.S.  618;  117  Fed.  925. 

^  Hale  vs.  Henkel  (1906),  201  U.S.  43;  McAlister  vs.  Henkel,  201  U.S.  99;  Nelson  vs. 
U.S.  (1906)  201  U.S.  92;   Alexander  vs.  U.S.  (1906)  201  U.S.  117. 


CORPORATIONS  267 

tion,  under  (3)  above,  and  thereby,  and  by  unlawful  agreements  with 
transportation  companies,  secured  illegal  preferences,  practically  as 
efficient  as  a  special  grant  from  the  government  would  be ;  they  have 
been,  and  have  intended  to  be  parties  to  combinations  in  restraint  of 
interstate  commerce,  and  have  attempted  to  monopolize,  and  have 
monopolized,  such  trade  and  commerce.     And  in  this  way  they  have 

.  .  .  Engrossed  and  piled  up 
The  cankered  heaps  of  strange  achieved  gold. 

There  is  not  much  in  the  common  law  rule  of  reason,  nor  in  the 
cases  reviewed,  to  furnish  much  of  aid  or  comfort  to  such  existing 
institutions  as  are  similar  to  those  that  have  been  challenged  in  the 
courts  heretofore. 


THE  LAW  OF   COMBINED    ACTION  OR   POSSESSION 
By  Frederic  J.  Stimson  of  the 'Harvard  Law  School 

(From  the  American  Law  Review,  January,  191 1) 

I  shall  consider  here  the  law  of  combination,  whether  of  persons  or 
of  properties  or  privileges  or  franchises,  and  whether  such  law  differs 
from  the  law  of  the  acts  and  possessions  of  the  individual,  and  if  so 
in  what  particulars.  This  subject  is  the  most  important  law  topic 
to-day;  it  is  one  of  the  very  earliest  doctrines  of  the  English  law, 
one  which  distinguishes  the  early  common  law  from  the  law  of  other 
countries,  and  yet  was  recently,  or  it  may  be  said  still  is,  one  of  the 
most  forgotten  and  the  most  misunderstood.  What  remained  of  it  in 
the  minds  of  lawyers,  our  fathers'  contemporaries,  was  merely  the 
law  of  conspiracy ;  usually  understood  to  mean  criminal  conspiracy, 
and  even  in  that  narrow  field  regarded  as  a  law  mysterious  and  tech- 
nical. The  common  law  on  the  subject  became  almost  forgotten ; 
the  early  statutes  were  unknown ;  and  that  is  why  most  of  our  anti- 
trust legislation,  the  Sherman  Act  included,  and  much  of  our  legis- 
lation in  the  matter  of  labor  combinations,  is  confused  and  clumsy 
and  apt  to  be  either  unnecessary  or  unconstitutional.  And  now  we 
are  told  by  recent  discoverers  or  agitators  that  the  very  basi^  of  this 
law  should  be  changed.  It  is  asserted  —  not  only  by  Mr.  Gompers, 
but  by  learned  judges,  and  even  by  the  British  Parliament  —  that 
modern  conditions  demand  the  removal  of  this  entire  body  of  law 
from  our  jurisprudence,  that  is  to  say,  they  advance  the  specious 
theory  that  the  law  of  the  acts  of  one  should  be  identical  with  the 
law  of  the  acts  of  many ;  correspondingly,  that  the  law  of  the  posses- 
sions of  one  should  be  identical  wth  the  law  of  possessions  of  many, 


268  CORPORATIONS 

even  though  that  many  be  not  natural  persons,  but  corporations  or 
aggregations  of  corporations,  labor  unions,  or  finally,  one  huge  cor- 
poration, national  in  extent,  which  we  call  the  trust.  The  recent 
Enghsh  Act  of  Parliament  says  that  no  act  done  or  intended,  and  no 
combination  by  a  number  of  persons,  shall  be  criminal  or  even  subject 
them  to  damages,  when  no  act  actually  done  by  them  in  the  combina- 
tion is  criminal  in  itself.  No  one  has  yet  proposed  that  the  corre- 
sponding principles  should  be  extended  to  the  field  of  capitalism 
—  that  is  to  say,  that  no  ownership  or  combination  of  capital  or  corpo- 
rations should  in  any  way  be  reprehensible,  when  its  component  parts 
were  lawfully  constituted.  The  English  statute  indeed  applies  only 
to  a  certain  class,  favored  above  all  other  classes  in  modern  legisla- 
tion ;  that  is  to  say,  the  class  of  those  who  perform  skilled  labor  with 
their  hands.  Such  a  limitation  would,  of  course,  be  impossible  in  this 
country,  but  the  principle  of  the  supposed  reform  is  specious,  and  to 
the  unlearned  in  history  and  in  the  essentials  of  liberty,  almost  un- 
answerable. Why  should  a  few  men  be  punished  or  be  liable  when 
no  one  does  anything  that  is  criminal,  and  even  the  combination  in- 
tends no  crime? 

The  answer  is,  in  logic,  the  tremendous  power  of  combination ;  in 
history  the  whole  course  and  origin  of  English  law ;  in  morals  the 
fact  that  of  all  our  English  law  this  law  recognizes  most  profoundly 
the  necessary  conditions  of  indi\ddual  liberty  and  well  being,  as  well 
as  the  principles  of  the  moral  law. 

Now  from  the  very  earliest  statutes  I  shall  quote,  when  the  danger 
of  powerful  oppressors,  combinations  of  great  men  against  small  was 
recognized  and  prohibited,  to  the  most  modern  decision  on  the  boycott 
or  blacklist  based  on  the  unwritten  common  law,  we  have  had  the 
intelligence  to  recognize  and  restrain  this  huge  power  of  combination. 
Through  most  of  Balzac's  novels  runs  the  plot  of  a  combination  of 
only  thirteen  men  and  women,  who,  by  the  mere  fact  that  there  are 
thirteen  combined  became  all  powerful  in  the  political,  the  social  and 
the  criminal  world.  And  it  is  not  sufficient  that  we  forbid  such  com- 
binations to  effect  crime.  Such  concerted  action  to  the  injury  of  an 
individual  in  his  trade,  or  even  of  his  good  repute  may  amount  to  the 
destruction  of  his  fortune  or  his  happiness.  You  cannot  combine  to 
injure  another,  even  without  \dolence  or  crime.  That  is  our  great 
principle.  I  can,  of  course,  dislike  a  man,  I  may  even  wish  him  ill ;  ^ 
I  may  refuse  to  buy  bread  of  a  baker ;  I  may  perhaps  advise  my  friends 
not  to  buy  bread  of  him ;  but  when  I  call  a  meeting  of  many  or  all 
the  inhabitants  in  my  town  and  vv-e  all  agree  not  to  trade  with  him, 
our  united  action  amounts  to  the  absolute  ruin  of  the  baker  in  question. 

1  A  man  may  have  as  bad  a  heart  as  he  chooses,  if  his  conduct  is  within  the  rules.  In 
other  words,  the  standards  of  the  law  are  external  standards.  Holmes,  The  Common  Law, 
p.  no. 


CORPORATIONS  269 

I  hope  I  have  shown  that  the  law  of  aggregation,  of  the  action  of  a 
multitude  and  of  the  possession  of  many,  perhaps  to  the  point  of 
monopoly,  is  and  ought  to  be  different  from  the  law  governing  the 
single  individual.  If  I  have  not  done  so  it  is  of  little  use  to  cite  au- 
thority ;  but  I  will  mention  that  the  very  latest  and  certainly  not  the 
least  profound  of  our  English  writers  on  this  subject  recognizes  fully 
the  position  I  take.  I  refer  to  Professor  Dicey  of  Oxford.  He,  in  his 
most  recent  book,  Law  and  Opinion  in  England,  at  the  very  outset  of 
his  appendix  (which,  as  Mr.  James  Bryce  once  remarked,  like  a  Ger- 
man footnote,  is  often  the  best  part  of  a  book),  puts  first  and  fore- 
most this  subject,  which  he  calls  "the  right  of  association."  It  is 
fully  discussed  in  his  text  from  which  I  shall  only  quote  two  sentences : 

Whenever  men  act  in  concert  for  a  common  purpose,  they  tend  to  create 
a  body  which,  from  no  fiction  of  law,  but  from  the  very  nature  of  things, 
differs  from  the  individuals  of  whom  it  is  constituted.  ...  A  body,  more- 
over, created  by  combination,  —  a  natural  corporation,  if  the  expression 
may  be  allowed,  — whether  a  political  league,  a  church,  or  a  trade  union, 
by  its  mere  existence  limits  the  freedom  of  its  members,  and  constantly 
tends  to  limit  the  freedom  of  outsiders.  Its  combined  power  is  created  by 
some  surrender  of  individual  liberty  on  the  part  of  each  of  its  members, 
and  a  society  may  from  this  surrender  acquire  a  strength  far  greater  than 
could  be  exercised  by  the  whole  of  its  members  acting  separately ;  a  dis- 
ciplined regiment  of  a  thousand  men,  acting  under  command,  is  a  far  more 
formidable  assailant  than  a  thousand  men  who  even  though  armed  act 
without  discipline  and  combination.^ 

And  in  the  appendix  he  says,  still  more  clearly  ^  that  the  right  of 
this  exercise  of  the  power  of  association  "raises  difficulties  in  every 
civilized  country.  In  England,  as  elsewhere,  trade  unions  and  strikes, 
or  federations  of  employers  and  lock-outs ;  in  Ireland,  the  boycotting 
by  league  and  societies  of  any  landlord,  tenant,  trader,  or  workman, 
bold  enough  to  disobey  their  behests  or  break  their  laws;  in  the 
United  States,  the  efforts  of  mercantile  trusts  to  create  for  themselves 
huge  monopolies ;  in  France,  the  real  or  alleged  necessity  of  stringent 
legislation  in  order  to  keep  religious  communities  (congregations  re- 
Ugieuses)  under  the  control  of  the  State  —  in  almost  every  country, 
in  short,  some  forms  of  association  force  upon  public  attention  the 
practical  difficulty  of  so  regulating  the  right  of  association  that  its 
exercise  may  neither  trench  upon  each  citizen's  indi\ddual  freedom 
nor  shake  the  supreme  authority  of  the  State.  The  problem  to  be 
solved,  either  as  a  matter  of  theory  or  as  a  matter  of  practical  neces- 
sity, is  at  bottom  always  and  everyAvhere  the  same.  How  can  the 
right  of  combined  action  be  curtailed  without  depriving  individual 

'  Dicey,  Law  and  Opinion  in  England,  p.  153. 
2  Ibid.  p.  465. 


270  CORPORATIONS 

liberty  of  half  its  value?  How  can  it  be  left  unrestricted  without 
destroying  either  the  liberty  of  individual  citizens,  or  the  power  of 
the  Government?  To  see  that  this  problem  at  the  present  day  pre- 
sents itself  everywhere,  and  has  nowhere  received  a  quite  satisfactory 
solution,  is  of  importance." 

The  importance  of  this  English  law  of  combination  is  well  shown 
by  the  fact  that  the  great  mind  of  Napoleon  I,  or  the  men  he  chose 
to  draw  the  French  code,  adopted  it  in  full ;  so  far  back  as  1820  Dane's 
Abridgment,  printed  in  Massachusetts,  tells  us  that  the  English  law 
of  conspiracy  was  made  French  law  by  the  code  of  Napoleon.  Now, 
what  is  this  law  of  conspiracy  ?  It  is  that  a  combination  of  many, 
not  only  to  commit  a  crime,  or  to  attain  a  lawful  object  by  unlauful 
means,  but  even  a  purpose  ordinarily  lauful  for  one  acting  alone,  if  to 
the  injury  of  a  third  party  or  the  State  —  to  the  hurt  of  the  public,  or 
to  the  coercion  of  another  in  his  lawful  right  —  is  unlawful,  void,  a 
criminal  offense,  and  (where  such  third  party  or  the  public  is  in  danger 
of  irreparable  injury)  may  be  enjoined  in  a  court  of  equity ;  and  where 
it  differs  from  all  other  common  law  of  private  right  is  in  this  —  that 
the  obnoxious  purpose  need  be,  not  a  criminal  offense,  but  merely  a 
moral  wrong. 

The  Old  Law  of  Conspiracy 

The  great  volumes  of  Statutes  of  the  Realm  begin  with  Magna 
Charta  as  promulgated  by  Henry  III,  a.d.  1217  ;  although  they  also 
print  the  Charter  of  Liberties  of  Henry  I,  a.d.  iioi  ;  the  charter  of 
Stephen,  a.d.  1107,  and  of  course  the  original  charter  of  John,  a.d. 
1 2 16.  Magna  Charta  contains  no  special  reference  to  the  law  of  com- 
bination ;  which  is  natural,  as  it  was  but  a  treaty  between  the  King 
and  his  individual  subjects.  The  law  of  conspiracy  is  commonly  said 
to  be  first  formally  recorded  in  the  Statute  concerning  Conspirators, 
of  uncertain  date;  sometimes  associated,  however,  with  the  statute 
against  Champerty  which  dates  from  33  Edward  I ;  that  is  to  say, 
1305.  This  is  early  enough  to  show  the  respect  to  which  this  ancient 
law  is  entitled ;  for  no  statute  of  importance  preceded  1305  except  the 
great  code  of  Westminster  I  and  the  statute  of  Mortmain.  Cobbett 
in  his  history  of  the  English  Parliament  makes  no  reference  to  this 
statute,  not  realizing  its  importance.  It  is  indeed  only  aimed  at  con- 
spiracies with  the  object  of  maintaining  lawsuits,  but  nevertheless  it 
is  a  criminal  statute,  and  the  word  "engine,"  that  is  to  say,  fraud,  is 
used  in  the  preamble,  thus  establishing  from  the  very  start  that  a 
combination  with  a  perfectly  lawful  purpose  (for  a  lawsuit  is,  of  course 
a  lawful  purpose),  but  with  the  intent  to  injure  some  one,  as  by  a  law- 
suit based  on  a  false  claim,  is  a  criminal  offense ;  and  furthermore 
that  the  intent  is  material.  A  special  writ  is  given,  entitling  it  a  plea 
of  conspiracy  and  trespass ;  and  "if  any  man  be  competed  under  such 


CORPORATIONS  271 

writ  he  is  to  be  imprisoned  until  he  hath  satisfied  the  party  aggrieved 
and  paid  a  fine  to  the  King."  Note  that  it  refers  to  conspiracy  as  an 
offense  or  action  aheady  well  known  in  the  law.  Like  all  early  statutes 
it  probably  merely  imposes  a  new  and  severer  penalty  on  a  common 
law  offense  and  is  irrefutable  evidence, of  what  the  law  already  was. 
But  five  years  before  this,  1300,  the  Articles  upon  the  Charter,  of  the 
28th  Edward  I,  state  that  the  King  hath  provided  a  remedy  against 
"conspirators"  by  special  writ.  There  is  no  definition  of  the  phrase, 
so  it  is  quite  clear  that  it  was  familiar  and  well  understood  in  the  year 
1300.  Then  in  1330,  the  4th  of  Edward  III,  the  preamble  of  Chapter 
II  says:  "divers  People  of  the  realm,  as  well  great  men  as  other, 
have  made  Alliances,  Confederacies,  and  Conspiracies  to  maiiitain 
Parties,  Pleas  and  Quarrels,  whereby  .  .  .  some  have  been  destroyed, 
and  some  for  fear  to  be  mained  and  beaten  durst  not  sue  for  tlieir  Right 
...  to  the  great  hurt  of  the  People  and  Common  Right."  A  sub- 
stantially fair  definition  of  the  modern  wrongful  boycott.  Fourteen 
years  later  another  statute  speaks  of  conspirators  and  confederators, 
and  gives  the  writ  of  exigent  against  them.  Then  the  first  great 
statute  of  the  Staple,  1353,  states  the  law  to  be  :  "ordained  and  estab- 
lished that  no  Merchant  or  other  shall  make  Confederacy,  Conspiracy, 
Covin  ...  or  evil  Device  ...  to  the  .  .  .  Disturbance,  Defeating 
or  Decay  of  the  said  Staples" ;  that  is  to  say,  there  must  be  no  com- 
bination in  restraint  of  trade  at  a  staple  town  or  in  the  staple  market. 
The  word  "Covin"  implies  intent.  Finally,  that  the  history  be  made 
quite  complete,  having  already  got  our  conspiracy  in  restraint  of 
trade,  we  now  have  a  statute  recognizing  conspiracy  in  labor  matters ; 
by  the  34th  of  Edward  III,  Chapter  g,  a.d.  1360,  certain  wages  are 
fixed,  and  "all  alliances  and  Covins  of  Masons  and  Carpenters,  and 
Congregations,  Chapters  (that  is  to  say,  trade  unions),  Ordinances 
and  Oaths  betwixt  them  made  or  to  be  made,  shall  be  from  hence- 
forth void  and  wholly  annulled ;  so  that  every  Mason  and  Carpenter 
of  what  condition  he  be,  shall  be  compelled  by  his  Master  to  whom  he 
serveth  to  do  every  work  that  to  him  pertaineth  to  do,  or  of  free  stone 
or  of  rough  stone ;  and  also  every  Carpenter  in  his  degree ;  but  it 
shall  be  lawful  ...  to  make  bargain  or  covenant  of  their  work  in 
gross,"  —  that  is  to  say  what  we  should  call  piece  work,  or  contract 
work,  is  allowed. 

We  thus  see  the  whole  law  of  combination  as  T  have  stated  it  com- 
pletely set  forth  in  statutes  of  the  Fourteenth  Century,  between  the 
years  1305  and  1360,  and  we  have  a  perfect  example  of  a  statute  aimed 
against,  first  a  conspiracy  to  maintain  a  lawsuit ;  then  against  a  con- 
spiracy in  restraint  of  trade,  the  origin  of  the  criminality  of  the  modern 
trust;  and  finally,  against  a  conspiracy  of  laboring  men,  with  a  quite 
satisfactory  defmition  of  the  boycott  and  its  evils.  Only,  with  true 
modern  leniency,  the  laborers  "shall  not  be  punished  by  fine  and 


2  72  CORPORATIONS 

ransom"  ;  although  indeed  they  may  be  imprisoned  if  they  refuse  to 
work,  according  to  the  Statute  of  Laborers ;  that  is  to  say,  conspiracy 
of  laborers  is  not  made  a  criminal  offense,  but  only  null  and  void  in 
the  law,  and  —  injunctions  not  then  existing  —  a  remedy  for  enforce- 
ment somewhat  similar  to  the  injunction  is  provided. 

Blackstone  wrote  on  this  matter  with  substantial  correctness, 
although  it  is  apparent  that  he  did  not  take  the  pams  to  study  these 
early  statutes.  His  ultimate  definition  is  found  in  his  book  on  crimi- 
nal law.  Vol.  IV,  p.  136.  He  speaks  only  of  conspiracy  to  indict  an 
innocent  man  of  felony,  and  mentions  that  there  must  be  at  least 
two  to  form  a  conspiracy.  But  Judge  Cooley's  footnote  states  the 
whole  common  law  as  shown  in  Hawkins'  Pleas  of  the  Crown  —  "all 
confederacies  wrongfully  to  prejudice  another  are  misdemeanors  at 
common  law  and  indictable  accordingly,  whether  the  intention  is  to 
injure  his  property,  his  person  or  his  character,"  and  "the  offense  of 
conspiracy  is  not  confined  to  the  prejudicing  a  particular  individual ; 
it  may  be  to  injure  public  trade,  to  aft"ect  public  health,  to  violate 
public  policy,  to  insult  public  justice,  or  to  do  any  act  in  itself  illegal. 
There  are  many  cases  in  which  the  act  itself  would  not  be  unlawful  if 
done  by  a  single  person  which  become  the  subject  of  indictment  when 
committed  by  several  with  a  joint  design" ;  and  he  quotes  from  the 
Term  Reports  and  Campbell  the  instances  of  two  or  more  persons 
agreeing  to  hiss  an  actor  at  a  theater,  by  preconcerted  plan,  or  when 
several  unite  in  a  scheme  to  blast  the  character  of  another,  though  the 
oral  slander  of  a  private  individual  is  not  indictable,  and  the  offense 
depends  on  the  unlawful  agreement,  and  not  on  the  act  which  follows 
it.  On  the  other  hand  it  is  no  offense  to  conspire  to  prosecute  a  guilty 
person ;  and  this  is  shown  in  a  better  instance  than  that  cited  by  Judge 
Cooley,  for  the  earliest  instance  of  conspiracy  in  the  State  Trials  is 
that  of  1588  where  certam  adherents  of  Queen  Elizabeth  conspired 
to  bring  to  judgment  certain  persons  adherents  of  Mary  Queen  of 
Scots  for  combming  to  dethrone  Queen  Elizabeth  and  put  Mary  in 
her  place.  Throughout  this  entire  report,  which  is  extremely  interest- 
ing, it  is  perfectly  evident  that  never  for  one  moment  do  they  consider 
the  combination  of  Queen  Elizabeth's  friends  a  conspiracy,  while  the 
combination  of  Queen  Mary's  friends  was  so  declared,  and  led  to  the 
conviction,  and  death  not  only  of  the  persons  involved  but  of  Mary 
herself.  In  Viner's  Abridgement  my  exact  instance  is  cited,  of  a 
conspiracy  not  to  buy  bread  of  a  certain  baker.  The  other  justices 
of  King's  Bench  seem  to  hold  that  there  must  be  an  overt  act  to  make 
such  a  combination  indictable ;  but  even  this  is  vigorously  denied  by 
the  Chief  Justice. 

But  if  there  were  any  doubt  about  the  ancientness  of  the  law  of 
conspiracy  it  would  be  solved  at  once  by  the  Abbot  of  Lilleshall  case, 
which  was  actually  decided  in  1221,  eighty-four  years  before  the  first 


CORPORATIONS  273 

Statute  of  Conspiracy  was  enacted ;  first  printed  by  the  Selden  Society 
in  1870,  it  is  a  perfect  instance  of  the  medieval  boycott,  well  worth 
being  quoted  in  full : 

The  Abbott  of  Lilleshall  complains  that  the  baiUffs  of  Shrewsbury  do 
him  many  injuries  against  his  Hberty,  and  that  they  have  caused  proclama- 
tion to  be  made  in  the  town  that  none  be  so  bold  as  to  sell  any  merchandise 
to  the  Abbot  or  his  men  upon  pain  of  forfeiting  ten  shilhngs,  and  that 
Richard  Peche,  the  bedell  of  the  said  town,  made  this  proclamation  by  their 
orders.  And  the  baiUffs  defend  all  of  it,  and  Richard  likewise  defends  all 
of  it,  and  that  he  never  heard  any  such  proclamation  made  by  anyone.  It 
is  considered  that  he  do  defend  himself  twelve-handed  (i.e.  with  eleven 
compurgators),  and  do  come  on  Saturday  with  his  law. 

This  is  a  remarkable  report ;  for  in  twelve  lines  (ten  lines  of  the  law 
Latin)  we  have  here  set  forth  all  of  the  important  principles  of  the 
law  of  boycott.  The  Abbot  complains  that  the  Shrewsbury  people 
do  him  many  injuries  "against  his  liberty"  i.e.,  the  Abbot  claims  a 
constitutional  right  to  freely  conduct  his  own  business ;  then  we  have 
the  recognition  of  the  threat  of  a  boycott  as  a  particularly  illegal  act : 
"They  have  caused  proclamation  to  be  made  that  none  sell  merchan- 
dise to  the  Abbott."  The  defendants  admit  the  illegality  of  their 
conspiracy,  because  they  deny  it  as  a  fact ;  and  the  bedell  likewise 
denies  that  he  ever  made  such  a  proclamation  or  threat,  whereupon 
(the  plaintiff  being  a  man  of  the  Church)  they  are  set  to  trial  by  wager 
of  law  instead  of  by  actual  battle,  neither  party  nor  the  court  making 
any  question  of  the  illegality  both  of  the  conspiracy  and  of 
the  act  complained  of. 

What  is  particularly  to  be  noted  is  that  in  every  one  of  these  statutes 
and  the  earliest  cases  cited,  it  is  the  intent  that  is  elemental.  And 
the  defendants  in  the  Lilleshall  case  themselves  admit,  that  were  it 
true  they  had  combined  vnih  the  intention  of  injuring  the  Abbot,  it 
would  have  been  a  criminal  offense. 

Monopoly 

The  law  of  monopoly,  resting  also  on  combined  action  with  a  com- 
mon purpose,  is  based  largely  on  the  same  principles.  A  great  mine 
of  information  on  this  point  is  to  be  found  in  the  Great  Case  of  Mo- 
nopolies, argued  in  1684  during  many  months  and  reported  in  full  in 
the  seventh  volume  of  State  Trials.^  All  the  lawyers  who  were  or 
became  Chief  Justices  of  England  at  that  time  were  concerned  in  this 
great  cause.  It  was  brought  by  the  great  East  India  Company 
against  a  merchant,  one  Sandys,  who  had  freighted  a  ship  for  East 
India  ports  in  contravention,  as  it  was  claimed,  of  the  charter  of  the 

'P.  S13. 


274  CORPORATIONS 

company  granted  originally  under  Elizabeth,  which  gave  them  a 
monopoly  of  the  trade  in  the  Indies.  Had  the  case  been  decided 
against  the  company  it  would  have  put  an  end  to  the  English  Indian 
Empire  in  India.  Sandys  defended  on  the  plain  ground  that  the  grant 
was  a  monopoly  in  contravention  of  the  common  law.  The  company 
only  sued  on  the  case  for  one  thousand  pounds  damages,  although  no 
specific  remedy  or  penalty  was  provided  in  the  grant  to  the  company  ; 
just  as  a  man  might  sue  to-day  a  trust  which  had  injured  him,  even 
though  no  specific  damages  were  allowed  by  the  statute.  They  won. 
The  court  admitted  that  the  common  law  made  grants  of  monopoly 
in  English  trade  void,  but  they  said  this  did  not  extend  to  foreign 
nations,  particularly  heathen  nations  ;  that,  as  the  Crown  might  pro- 
hibit all  such  trade,  to  prevent  possible  corruption  of  the  manners 
and  morals  of  England  by  intercourse  with  heathens,  so  the  King 
might  grant  a  limited  permission  or  grant  the  monopoly  of  said  trade 
to  one  company,  or  to  certain  specified  persons.  On  the  other  hand, 
Sandys  relied  on  the  old  Statute  of  Edward,  i8  Edward  III,  chap.  3 
"that  the  Sea  be  open  to  all  manner  of  merchants  to  pass  with  their 
merchandise  where  it  shall  please  them"  —  upon  this  the  plaintiff's 
demur.  Holt,  afterwards  Chief  Justice,  made  a  wonderful  argument 
against  the  monopoly,  curiously  modern  in  thought ;  much  of  it  in- 
deed might  have  been  quoted  in  the  brief  against  our  Standard  Oil 
company.  Here  are  a  few  of  the  interesting  matters  he  cited.  First 
the  case  of  the  King  against  Crispe:  "Here  was  lately  an  agreement 
between  copperas  makers  and  copperas  merchants  for  the  buying  of 
all  copperas;  and  that  these  copperas  makers  shall  for  three  years 
make  at  so  much  a  ton,  and  restraining  them  from  selling  to  others." 
This  was  held  to  be  criminal  engrossing.  But  long  before  this  he 
cites  the  case  of  one  Peachy,  in  the  50th  of  Edward  III,  a.d.  1375. 
Peachy,  he  tells  us,  by  Royal  grant  was  given  a  monopoly  of  selling 
sweet  wines  in  London ;  he  did  so  and  was  punished  for  extortion, 
just  as  if  it  were  claimed  and  proved  that  a  modern  trust  sold  its 
goods  at  an  exorbitant  profit  by  reason  of  its  monopoly,  —  and  the 
Royal  grant  did  not  protect  him.  The  case  also  cites  ^  the  famous 
case  of  the  Tailors  of  Ipswich,^  —  "A  company  of  tailors  made  a  by- 
law to  exclude  tailors  from  exercising  and  using  their  trade  within 
the  town  unless  they  present  themselves  to  the  masters  and  wardens 
of  the  company  and  are  admitted  as  members."  This  by-law  was 
held  void,  the  court  saying  —  "ordinances  for  the  good  government 
of  men,  of  trades  and  mysteries  are  good ;  but  not  to  restrain  any  in 
their  lawful  mystery"  ;  and  they  refer  even  to  the  monopoly  held  by 
physicians,  and  say  —  "The  patent  to  the  College  of  Physicians  that 
no  person  shall  practice  physic  without  their  license  would  have  been 
void  had  it  not  been  confirmed  by  act  of  Parliament,  yet  this  con- 

ip.  520.  2  6  Coke. 


CORPORATIONS  275 

cerned  not  all  the  subjects  of  England  and  is  a  mystery,  and  the  pro- 
fessors thereof  fit  to  be  approved  by  persons  of  skill  in  it."  ^ 

Here  we  have  a  complete  review  of  the  common  law  of  monopoly 
and  of  monopolistic  combinations  both  by  an  individual  (Peachey's 
case),  by  a  company  of  manufacturers  (King  against  Crispe),  by  a 
company  of  industrial  workers,  what  we  should  call  a  trade  union 
(the  Tailors'  case),  and  finally  by  the  members  of  a  skilled  profession. 
It  is  so  complete  that  nothing  need  be  added;  and  we  see  that  the 
question  of  the  intention  runs  throughout  them  all. 

The  Modern  Law 

So  much  for  the  antiquity  of  the  law,  but  in  these  days  we  must 
be  prepared  to  admit  that  no  law  however  ancient  can  be  justified 
by  that  alone  unless  it  appeals  to  modern  reason.  The  next  thing 
therefore  to  consider  is  what  other  tests  of  the  unlawful  combination, 
either  of  labor  or  trade  may  be  imagined;  and  whether  such  other 
tests  would  on  the  whole  work  better  than  the  test  of  intention. 

So  far  as  I  am  able  to  find  but  two  others  have  been  suggested: 
One  is  the  familiar  one  of  the  effect  or  the  result,  that  is  to  say,  if  the 
result  be  unlawful  or  against  public  interest,  it  may  render  unlawful 
the  combination  bringing  it  about.  Now  this  precise  question  was 
recently  asked  by  one  of  the  Justices  of  the  Supreme  Court  of  the 
United  States  to  one  of  the  Counsel  arguing  for  the  government  the 
case  against  the  Standard  Oil  Company.  Mr.  Justice  White  asked 
Mr.  Kellogg  whether,  if  the  Standard  Oil  Company  had  in  fact  ac- 
quired every  oil  refinery  in  the  State  of  Pennsylvania,  that  fact  would 
have  made  it  an  unlawful  combination  there.  Mr.  Kellogg  for  the 
moment  did  not  give  a  definite  answer,  but  the  Attorney  General  in 
his  close  took  up  the  question,  taking  the  ground  for  which  I  contend 
that  it  was  one  of  intention  and  not  of  result.  The  old  New  York 
anti-trust  statute  was  based  upon  the  latter  notion,  and  consequently 
was  never  effectual ;  it  provided  in  substance  (for,  being  a  criminal 
statute,  it  had  to  be  construed  strictly)  that  when  any  combination 
brought  about  a  monopoly,  that  is  to  say,  an  actual  or  complete 
monopoly  of  a  trade  in  the  State  of  New  York,  it  should  be  an  unlawful 
trust  under  the  New  York  statute.  As  it  was  obvious  that  no  trade, 
in  fact,  ever  did  succeed,  not  even  the  Standard  Oil,  nor  the  sugar, 
nor  any  other  trust,  in  actually  getting  a  hundred  per  cent  monopoly, 
that  test  proved  a  failure,  and  no  one  was  ever  convicted. 

I  believe  that  the  question  of  complete  monopoly  or  the  ultimate 
effect  has  nothing  whatever  to  do  with  it  except  in  so  far  as  it  may 
be  evidence  of  the  probable  intention  of  the  conspirators  at  the  incep- 
tion of  the  combination.    It  is  to  me  perfectly  clear  that  I  may 

*  Williams,  arguendo,  p.  548. 


276  CORPORATIONS 

obtain,  with  one  or  more  associates,  an  actual,  complete,  impregnable 
one  hundred  per  cent  monopoly,  and  yet  be  perfectly  within  my  law ; 
on  the  other  hand  I  may  combine  with  two  or  three  or  more  with  the 
intention  of  restraining  trade,  of  getting  a  monopoly,  of  destroying 
competitors,  and  ours  will  be  a  criminar combination  though  we  fail 
in  our  purpose  as  rapidly  and  completely  as  did  some  of  the  earlier 
trusts,  for  instance  the  cordage  trust,  which  only  lasted  a  year  or  two 
before  it  went  down  in  utter  smash.  If  I  happen  to  own,  let  us  say, 
the  only  cordage  works,  at  Plymouth,  in  the  State  of  Massachusetts, 
except  a  small  concern,  let  us  say,  at  Newburyport,  in  the  same  State, 
I  have  a  perfect  right  to  buy  out  my  competitor,  there  being  no  un- 
fair act  committed.  I  am  inclined  to  think  even  that  I  and  my  com- 
petitor may  form  a  consolidated  cordage  company  and,  failing  evi- 
dence to  show  that  we  intend  then  or  ever  to  get  a  monopoly  by  fair 
means  or  foul,  we  are  within  our  right ;  that  is  to  say  if  our  motive  is 
merely  that  of  making  a  bigger  concern  or  securing  a  profitable  bar- 
gain. That  motive  being  perfectly  lawful  will  make  our  combination 
lawful.  In  other  words  it  grows  out  of  the  natural  relation  that  I 
have  to  my  neighbor,  whose  property  I  purchased.  And  this  brings 
me  to  the  third  and  most  modern  test,  which  I  mention  merely  because 
it  is  advanced  in  the  most  recent  textbook,  the  work  of  Mr.  Cooke  of 
New  York  —  Combinations,  Monopolies  and  Labor  Unions.  In  his 
preface  he  rejects  the  old  test,  for  which  I  am  still  contending,  of  inten- 
tion ;  but  it  appears  from  the  context  that  he  objects  to  it  principally 
because  it  has  been  repealed  by  the  modern  English  statute,  the  Trade 
Disputes  Act  of  1906.  Now  what  we  may  do  by  statute  is  one  thing. 
Mr.  Gompers  has  been  trying  for  thirty  years  to  get  that  English 
statute  and  its  predecessor,  the  Conspiracy  and  Protection  of  Property 
Act,  38  and  39  Vict.  c.  86,  adopted  in  the  United  States,  but  has  only 
succeeded  in  the  States  of  Maryland,  California  and  Oklahoma.  His 
bill  to  adopt  the  English  statute  has  been  pigeon-holed  in  Congress 
for  a  generation.  However,  he  is  entirely  within  his  rights  in  leading 
the  agitation,  and  we  may,  of  course,  enact  such  statute  yet  if  we  deem 
it  wise,  and  if  the  statute  woul,d  be  constitutional.  Fortunately  or 
unfortunately  it  would  not  be,  for  it  is  the  clearest  kind  of  class  legis- 
lation; and  that  I  take  to  be  forbidden,  expressly  or  impliedly,  in 
every  State  Constitution  in  this  country,  except  perhaps  that  of  Okla- 
homa, as  well  as  by  the  clear  implication  of  the  Fourteenth  Amend- 
ment. 

The  point  we  are  discussing  is  not  whether  we  should  alter  the 
ancient  common  law  of  combination,  or  whether  such  alteration  would 
be  constitutional,  but  what  the  law  in  fact  is,  and  whether  it  is  a 
reasonable  law  to-day.  Now  Mr.  Cooke  advances  the  test  exploited 
by  the  famous  case  of  the  Mogul  Steamship  Company  vs.  McGregor 
—  "the  natural  incident  or  outgrowth  of  some  lawful  relation,"  and 


CORPORATIONS  277 

he  says  the  three  relations  he  specially  considers  are  those  of  trade 
competitor,  of  employer,  and  of  employee.  In  his  lack  of  interest  in 
our  "mass  of  anti-trust  legislation"  as  clumsy  and  unnecessary,  I 
have  every  sympathy,  for  I  hold  it  to  be  unnecessary,  and  we  both 
hold  it  to  be  clumsy ;  but  when  he  calls  the  common  law  also  clumsy 
and  a  worse  than  useless  medieval  survival,  I  cannot  follow  him. 
Yet  I  do  not  feel  that  we  are  so  far  apart,  in  fact  only  that  we  do  not 
give  the  same  reasons  for  our  opinion.  I  think  the  common  law 
theory,  or  what  I  believe  to  be  the  common  law  theory,  arrives  at 
the  right  result,  by  saying  that  a  combination,  to  quote  Mr.  Cooke's 
words,  which  arises  naturally  out  of  a  relation  of  trade,  such  as  the 
purchase  of  an  adjoining  business,  is  lawful,  for  the  very  reason  I 
have  alleged;  that  its  first  motive  is  the  necessary  development  of 
business,  arising  naturally  and  normally,  and  that  the  indirect  result, 
of  restraining  trade,  or  even  getting  a  monopoly  of  it,  is  not  the  first 
thing  contemplated,  and  consequently  not,  under  my  test,  the  inten- 
tion of  the  combination.  This  I  take  it  to  be  the  law  of  the  Mogul 
case.  It  was  English  law  in  the  twelfth  century,  and  it  is  American 
common  law  to-day. 

The  Present  Question 

Having  thus  stated  the  thesis  which  I  wish  to  defend,  I  will  ask 
now,  consider  first,  the  past  history  of  our  laws ;  then  the  reported 
cases,  and  finally  pass  to  apply  our  test  to  the  great  questions  of  to-day. 
I  have  already  said  that  I  stand  by  the  old  common  law  test  of  inten- 
tion, intent ;  a  test  neither  unusual  nor  difficult  for  a  jury  to  apply, 
for  it  is  universal  in  the  criminal  law,  substantially  recognized  in  Mr. 
Justice  Holmes'  book  on  the  Common  Law,  and  universally,  I  think, 
recognized  in  the  oldest  evidence  of  the  law  we  really  have  —  namely, 
the  very  old  statutes  of  England.  For  the  Reports  of  cases  begin 
one  or  two  centuries  later,  and  we  must  always  be  on  our  guard  against 
the  tendency  of  judges  to  be  over  learned,  to  base  the  English  common 
law  upon  the  logic  of  the  mind  rather  than  the  logic  of  events,  and 
most  of  all  to  impart  into  England  the  Roman  law.  I  could  show 
statute  after  statute  in  Anglo-Norman  reigns  which  is  aimed  against 
the  Roman  law,  and  even  against  the  Courts  of  Chancery  and  the 
Church  Law,  its  offshoots,  and  even  a  statute  which  forbids  the 
Roman  law  to  be  cited  in  the  courts  ;  another  which  complains  of  the 
number  of  Italian  clerks  (clerics)  brought  into  England  and  of  their 
teaching ;  and  finally  at  the  beginning  of  every  reign,  each  king 
solemnly  promised  that  the  English  law,  that  is,  the  law  of  Edward 
the  Confessor,  should  be  restored,  and  should  be  recognized  inde- 
pendently of  any  Roman  innovation.  For  the  Roman  law  was  only 
rediscovered  to  the  world  by  Pisan  pirates  at  Amalfi  in  1135,  and  of 


278  CORPOIL\TIOXS 

course,  this  wonderful  system  spread  among  the  learned  and  dazzled 
them  vdxh.  its  logic.  So  that  judges  in  rendering  their  opinions  from 
the  bench  delighted  in  finding  a  reason,  logic,  and  a  Roman  law  basis 
or  precedent  for  the  ven,-  oldest  institutions  of  the  Anglo-Saxon  com- 
mon law.  And  this  has  lasted  down  to  modern  times.  There  are 
plenty  of  learned  writers,  the  successors  of  Austin  and  others,  who 
still  so  maintain.  Spence,  even,  admits  that  modern  English  law  is 
almost  as  much  Roman  as  English.  But  the  only  point  I  wish  to 
make  is  that  we  must  beware  of  the  subtleties  of  judges  in  their 
opinions ;  and  perhaps  of  that  school  which  seeks  to  find  in  all  cases 
a  deep  law  logic  reason  for  an  ancient  customary-  law.  Even  the  book 
of  Mr.  Justice  Holmes,  perhaps  our  leading  writer  on  this  subject, 
and  the  more  recent  book  by  Professor  Gray,  give  many  pages  to  pro- 
foimd  speculation  and  analysis  of  the  logic  of  decisions  ;  but  the  early 
common  law  did  not  grow  that  way.  It  was  the  ancient  and  custom- 
ary- law  of  the  people ;  the  evolution  of  the  totality  of  their  lives  and 
customs,  only  in  comparatively  recent  times  it  became  subject  to  the 
accretion  of  more  judicial  opinion  and  of  "judge-made  law." 

The  common  law,  therefore,  was  that  a  conspiracy,  an  unlawful 
combination,  is  a  combination  of  two  or  more  persons  (and  they  must 
be  two) ;  it  has  been  decided  that  a  husband  and  wife  cannot  form  a 
conspiracy-,  (i)  with  a  criminal  or  unlawful  purpose,  aim  or  intention ; 
(2)  or  a  lawful  purpose,  which  by  intention,  or  necessarily,  has  to  be 
attained  by  \inlawfvil  means ;  or  (3)  for  a  purpose  morally  wrongful 
as  is  the  injur}-  of  a  third  person  or  the  State.  And  no  overt  act  alone 
makes  a  conspiracy-  nor  is  one  necessary-  to  a  conspiracy,  except  merely 
as  e\idence  under  the  last  two  varieties,  that  is  of  a  combination  in- 
tending imlawful  means  or  merely  wrongful  ends.  It  is,  of  course, 
this  question  of  the  moral  purpose,  the  doing  imto  others  as  you 
would  not  be  done  by,  that  is  the  ver\-  distinction,  it  seems  to  me,  of 
this  English  law ;  a  distinction  so  high  that  it  has  been  admired  and 
copied  into  the  codes  of  most  modern  civilized  countries  as  completely 
as  the  institution  of  trial  by  jur\- ;  and  this  principle  is  not  based  upon 
recent  cases  alone.  I  have  no  intention  of  going  into  the  thousands 
of  decisions  upon  the  modern  strike,  the  boycott  or  the  blacklist,  or 
the  acts  of  intimidation  and  picketing,  or  the  combinations  in  restraint 
of  trade.  But  I  -nill  mention  what  appear  to  be  the  boundar}-  cases, 
for  we  know  it  is  the  nice  decisions,  the  border  cases,  that  draw  the 
line  of  the  law. 

I  assert  that  in  this  law  of  combined  action,  the  law  goes  into  the 
domain  of  morals  and  of  high  constitutional  right,  and  that  it  ought 
to  do  so.  The  opponents  of  the  theor}-  base  their  opposition  on  the 
fact  that  the  law  does  not  do  so  in  similar  cases  of  indiWdual  action 
or  possession  —  which  I  admit.  The  friendly  critic  might  ask,  why 
not?     To  this  I  can  only  answer  that  it  is  practically  impossible  for 


CORPORATIONS  279 

the  law  to  refine  upon  private  motives  to  this  extent.  Where  an  in- 
di\"idual  commits  an  act  that  is  criminal  the  law  can  find  him  guilty ; 
when  he  commits  a  tort  upon  his  neighbor,  it  may  give  that  neighbor 
damages  and  the  very  fact  that  this  already  is  going  a  step  farther  is 
shown  by  the  far  greater  difficulty  that  law  of  tort  gives  to  Holmes/ 
Gray  and  other  students  of  the  logic  of  the  law  than  the  question  of 
crime ;  but  when  you  go  beyond  even  tort,  which  after  all  is  a  definite 
tangible  injun,-  to  a  definite  person  under  old  common  law  theories  of 
personal  trespass  or  negligence,  and  come  to  that  injun.'  which  is 
mere  malevolence  accompanied  by  an  action  otherv\'i5e  perfectly  law- 
ful, it  is  a  matter  for  the  priest,  for  the  confessor,  for  a  man's  conscience, 
not  for  the  law.  A  simple  example  again  is,  of  course,  my  engaging 
in  a  trade  or  in  refusing  to  trade  with  some  individual ;  in  both  cases 
really  for  the  purpose  of  injuring  that  indi\'idual,  but  otherwise  en- 
tirely within  my  lawfiil  rights.  My  act,  in  other  words,  on  its  surface 
lawful  and  regular,  deep  in  my  conscience  is  dictated  by  hatred.  The 
law  cannot  go  into  one  man's  conscience:  we  have  been  claiming  only 
that  it  might,  or  that  a  jury  might,  judge  of  the  consciences  of  two  or 
more  persons  working  together  ;  for  the  object  of  their  getting  together 
is  a  matter  of  which  a  jur^-  well  may  judge. 

Yet  there  are  cases  which  come  ver\-  near  to  this  —  extreme  cases 
of  indi\'idual  action ;  and  I  '^ill  mention  four  or  five ;  one  very  old 
and  the  others  xtry  modern.  Xo  better  case  illustrating  my  doctrine 
of  combination  can  be  imagined  than  that  one  in  the  State  of  Ohio, 
decided  only  last  year,  when  a  number  of  persons  combined  to  draw 
their  deposits  from  a  bank  on  the  same  day  for  the  piirpose  of  break- 
ing that  bank,  and  that  purpose  having  been  duly  found  by  the  court 
or  a  jury,  it  was  declared  a  conspiracy.  Of  course  the  law  is  a  creature 
of  common  sense  besides  custom,  and  while  all  conspiracies  are  in  my 
opinion  technically  criminal,  it  is  conceivable  that  they  -^-ill  range  all 
the  way  from  those  highly  so,  do-mi  to  those  where  a  criminal  punish- 
ment  would  hardly  be  imposed.  The  law  will  rest  content  with  a  ci\-il 
suit  for  damages  or  even,  as  in  the  anti-trust  common  law  of  England, 

1  "Our  sj-stem  of  private  liability  for  the  consequences  of  a  man's  own  acts,  that  is,  for 
his  trespasses,  started  from  the  notion  of  actual  interest  and  actual  personal  culpability." 
Holmes,  The  Common  Law,  p.  4. 

It  is  important  to  note  that  this  law  of  conspiracy  has  no  connection  whatever  with  the 
common  law  of  tort  ;  that  is  to  say,  it  springs  from  another  and  a  different  route ;  it  is  indeed 
more  ancient  doctrine  than  that  of  torts,  which  did  not  assume  its  present  shape  before  the 
fourteenth  centurj-.  The  earliest  case  of  tort  I  find  in  Professor  Ames"  collection  dates 
only  from  134S.  The  notion  of  responsibUity  of  a  person  for  a  tort  not  amounting  to  a 
crime  ia  a  court  of  law  is,  therefore,  considerably  later  than  the  doctrine  of  conspirac}-,  as 
shown  at  least  in  the  Statute  of  1305  if  not  before. 

Certain  modem  cases  quoted  in  the  text  (and  a  few  more  might  be  added)  lean  strongly 
to  the  doctrine  that  an  individual  may  recover  damages  from  another  individual  for  an  act 
otherwise  lawful,  but  prompted  solely  by  malice.  There  seems  to  be  a  sudden  development 
of  the  law  that  way  ;  but  such  was  not  until  to-day  (if  it  be  to-day)  the  law.  The  writer 
makes  no  plea  for  such  a  change;  all  the  doctrine  contended  for  in  the  text  is  ccmfined 
strictly  to  the  law  of  combination. 


28o  CORPORATIONS 

with  merely  declaring  the  combination  void  at  law,  such  as  all  con- 
tracts which  were  simply  in  restraint  of  trade.  But  there  are  cases 
which  almost  seem  to  apply  this  law  of  unmoral  purpose  to  individual 
action.  First  of  all  is  the  very  old  case  of  Tarlton  vs.  McGawley.^ 
That  was  a  case  where  a  slave  trader  having  his  ship  off  the  coast  of 
Africa  had  collected  a  tribe  of  negroes  upon  the  beach  for  the  purpose 
of  ensla^  ing  them ;  but  a  competing  slave  trader  came  up  with  an- 
other vessel,  and  in  order  to  destroy  his  competitor's  trade  fired  a 
cannon  with  the  intention  of  scaring  the  negroes  on  the  beach  so  that 
they  ran  away  into  the  woods  and  escaped.  One  or  two  were  killed 
or  injured  but  there  was  no  trespass  committed  upon  the  defendant. 
The  point  that  slave  trading  was  an  immoral  occupation  in  itself  was 
of  course  not  raised  in  those  days ;  yet  this  perfectly  lawful  act  was 
held  to  give  the  owner  of  the  vessel  the  right  to  damages  when  he  got 
back  to  London. 

Wyeman  vs.  Deady  ^  was  a  Connecticut  case  where  the  plaintiff  got 
damages  against  defendants  for  procuring  his  discharge  by  intimidation 
of  the  employer.  The  element  of  conspiracy  was  said  by  the  court 
not  to  be  in  the  case.  So  in  Brennen  vs.  United  Hatters,^  the  plaintiff 
recovered  damages  from  the  Hatters'  Union  because  he  refused  to 
pay  the  fine  and  they  took  away  his  membership  card  which  resulted 
in  his  discharge  by  the  employer,  and  the  court  go  to  the  length  of 
saying  that  malice  is  the  intentional  doing  of  a  wrongful  act  without 
justification  and  a  wrongful  act  is  an  act,  which  in  the  ordinary  course 
will  infringe  upon  the  rights  of  another.  But  perhaps  the  most  extreme 
modern  case,  almost  going  back  to  the  old  case  against  McGawley, 
that  of  the  slave  trader,  is  the  Minnesota  case  of  Tuttle  vs.  Buck,"* 
where  the  defendant,  not  a  barber,  but  a  banker,  established  another 
barber  in  the  town  for  the  purpose  of  competing  with  the  plaintiff, 
who  had  been  for  some  years  established  as  a  barber  in  the  same 
village.  It  was  alleged  that  this  was  done  with  the  sole  purpose  of 
destroying  the  plaintiff's  business,  and  not  for  any  legitimate  interest 
of  the  defendant,  and  the  plaintiff,  although  the  court  was  evidently 
in  some  doubt,  got  damages  under  a  divided  opinion.  Finally  there 
was  also  a  Louisiana  case  where  the  proprietor  of  a  barroom  recovered 
damages  against  the  superintendent  of  a  street  car  line  for  advising 
the  car  conductors  and  drivers  not  to  patronize  his  saloon. 

These  are  examples  of  cases  brought  against  individuals  not  in  con- 
spiracy which  seem  to  me  to  go  to  the  extreme  limit  of  the  law. 

Let  us  now  close  by  applying  our  principle  to  modern  cases  of  com- 
bination ;  one  of  labor  and  one  of  capital.  If  our  test  is  of  any  value 
it  should  stand  application  to  the  very  most  recent  and  most  important 
controversies  now  before  the  public,  and  we  wall  take  as  examples  — 

1  Peak,  N.  P.  C,  170.  '  65  Atl.  165. 

S65Atl.  129.  <  119  N.  W.  946. 


CORPORATIONS  281 

but  merely  as  examples,  for  the  cases  are  still  subjudice  —  the  great 
Government  suit  against  the  Standard  Oil  Company  on  the  one  hand 
and  the  contempt  process  against  Messrs.  Gompers,  Mitchell  and 
others  in  the  Buck  Stove  and  Range  case  at  Washington,  D.C.,  on  the 
other. 

In  the  first  place  we  must  recognize  that  serious  difficulty  arises 
from  the  fact  that  we  are  acting  under  a  statute,  at  least  in  matters  of 
interstate  commerce,  the  Sherman  Act  of  July  2,  1890.  At  common 
law  a  combination  in  restraint  of  trade  or  a  monopoly  by  royal  grant 
were  both  void ;  no  contract  under  them  could  be  enforced ;  and  by 
the  Statute  of  Monopolies  any  person  injured  might  bring  a  common 
law  suit  and  recover  treble  damages ;  indeed  it  appears  from  the  East 
India  case  that  this  was  common  law  without  the  statute.  No  ma- 
chinery of  government  interference  was  provided ;  the  tremendous 
power  of  the  government  was  not  employed  like  a  club  to  destroy  the 
business  and  all  that  it  represented ;  it  was  always,  under  common 
law  principles,  a  lawsuit  between  individuals. 

The  contract  or  combination  might  indeed  be  held  void  as  against 
the  suit  of  any  third  person  aggrieved,  or  against  the  defense  of  a 
party  refusing  to  be  bound  by  it,  but  there  the  matter  ended.  Now 
our  Sherman  Act  goes  beyond  the  common  law  in  two  particulars: 
First,  the  familiar  one  that  on  its  face  it  forbids  all  contracts  in  any 
restraint  of  interstate  commerce,  even  a  reasonable  one ;  and  secondly, 
and  quite  as  important,  that  instead  of  lea\dng  the  matter  to  indi- 
viduals it  is  made  the  duty  of  the  Government,  through  any  District 
Attorney,  to  institute  proceedings  in  equity  to  prevent  and  restrain 
such  violations.^  All  property  owned  under  any  such  contract  or  com- 
bination, being  transported  from  one  State  to  another  or  from  a  for- 
eign country,  may  be  seized  and  forfeited ;  and  then  follows  the  com- 
mon law  provision  of  treble  damages  to  the  indi\idual  injured.'^  It  is 
furthermore  ^  made  a  misdemeanor  for  any  person  to  engage  in  such 
combination  or  make  such  contract.  The  Act,  of  course,  applies  to 
corporations  and  is  called  "An  Act  to  Protect  Trade  and  Commerce 
Against  Unlawful  Restraints  and  MonopoHes. ' '  Section  one  names  par- 
ticularly contracts  in  restraint  of  trade,  and  punishes  persons  engaged 
in  such ;  and  section  two  is  addressed  to  persons  who  monopolize  or 
attempt  to  monopolize  or  combine  to  monopolize  any  part  of  such 
interstate  trade.  It  was  apparent  in  the  argument  before  the  Supreme 
Court  that  both  bench  and  bar  had  some  difficulty  in  seeing  what  new 
thing  section  two  added  to  section  one,  and  yet  they  were  bound  to  find 
such  additional  meaning  if  possible.  Where  the  statute  transcends 
or  contradicts  common  law  is  well  shown  in  section  one  where  "every 
contract,  combination  or  conspiracy  in  restraint  of  trade  "  is  denounced. 
But  a  combination  in  restraint  of  trade  is  by  the  definition  of  the 

'  Sherman  Act,  Sect.  4.  2  Ibid.  Sect.  7.  .  '  Ibid.  Sect.  3. 


282  CORPORATIONS 

common  law  a  conspiracy,  so  this  is  tautologous,  while  the  words 
"every  contract"  in  section  one,  with  the  words  "any  part"  in  section 
two,  have  forced  our  courts  to  denounce  contracts  in  restraint  of  trade, 
or  combinations,  which  at  the  common  law  would  have  been  reason- 
able growth  and  not  monopoly. 

But  to  my  mind  the  innovation  of  the  remedy  is  more  important 
still.  Mr.  Johnson,  in  arguing  for  the  Standard  Oil  Company,  urged 
at  least  that  they  be  punished  only  for  what  they  had  done  wrong, 
and  not  totally  destroyed.  But  the  sledge  hammer  of  government 
prosecution  cannot  stop  short  of  destruction.  No  other  penalty  is 
provided.  And  a  still  more  important  consequence  of  using  this  direct 
prosecution  by  government  in  a  court  of  chancery  is  that  there  is  no 
jury  trial  of  the  facts  in  the  locality  where  they  happened.  It  prac- 
tically comes  to  an  attempt  by  the  Supreme  Court  to  decide  what  is 
peculiarly  a  question  of  fact,  on  a  written  record,  which  did  indeed,  I 
believe  in  this  case,  amount  to  twenty-seven  printed  volumes.  But 
the  question  of  intention  and  of  the  reasonableness  of  ordinary  busi- 
ness matters  is  peculiarly  adapted  to  be  tried  by  a  jury  of  the  people 
in  the  locality  affected.  Under  the  Sherman  Act  our  highest  tribunal 
is  deprived  of  this  assistance.  Furthermore  the  difficvdty  of  discrimi- 
nating between  "good  trusts  and  bad  trusts"  is  enormously  more 
difficult  for  a  high  court  of  appeal  in  a  hearing  on  a  bill  in  equity  than 
it  is  for  a  jury  in  a  common  law  suit  for  damages.  However,  lea^'ing 
the  essential  difficulties  of  interpreting  this  Act  of  Congress  with  this 
brief  mention,  let  us  now  try  to  apply  our  test,  —  which  is  after  all  I 
think,  the  test  intended  by  the  Sherman  Act  as  I  believe  it  to  be,  — 
the  test  of  the  common  law. 

In  the  Standard  Oil  case  the  question  would  be  —  was  the  combi- 
nation actually  complained  of  m  this  suit  (which  might,  of  course,  be 
the  original  Trust  agreement,  or  a  later  combination  of  corporations, 
or,  finally,  the  articles  of  association  of  the  Standard  Oil  Company  of 
New  Jersey  itself)  created  with  the  intention  and  the  aim  of  restrain- 
ing trade  in  any  of  the  many  forms  of  such  restraint,  as  by  fixing  prices, 
limiting  output,  parceling  territory,  or  even  unfair  competition,  the 
destruction  of  competitors  by  artificial  underselling,  or  finally,  with 
the  intention  and  aim  of  establishing  a  Federal  monopoly.  No  amount 
of  reasonable  acquisition  without  such  malign  purpose  and  with  no 
evidence  of  any  malign  act,  no  amount  of  acquisition  of  more  refineries, 
pipe-lines,  fleets  of  ships,  would  in  this  test  of  itself  amount  to  e\'i- 
dence  of  a  criminal  combination ;  even  though  the  result,  either  by 
larger  ownership  or  greater  ability,  might  in  fact  be  to  get  a  very  large 
percentage  of  the  business  of  refining  and  shipping  oil.  On  the  other 
hand,  if  the  jury  found,  —  and  now  the  court  must  act  as  a  jury,  — 
that  the  intention  of  the  contract  or  combination  or  charter  com- 
plained of  was  to  bring  about  a  national  monopoly  (and  any  one  of 


CORPORATIONS  283 

the  above  enumerated  acts  of  restraining  trade  would  be  evidence  of 
such  intention),  then  a  jury  might  find  the  contract  or  combination 
void;  and  so  a  State  court,  of  intrastate  combination,  under  the 
common  law. 

It  is  of  course  possible,  if  not  probable,  that  our  high  court  has  no 
doubt  of  the  law,  but  it  is  more  than  likely  that  they  have  a  doubt  of 
the  facts,  sitting  merely  as  an  appellate  court  of  chancery  with  no 
jury  to  aid  them. 

Coming  now  to  the  Buck  Stove  case,  the  same  principles  apply.  I 
leave  out  that  part  of  the  argument  of  counsel  for  Mr.  Mitchell  and 
Mr.  Gompers,  which  is  based  on  the  claim  that  their  right  of  the 
freedom  of  the  press  is  infringed,  for  that  brings  up  merely  the  con- 
stitutional question  of  whether  the  freedom  of  the  press  in  our  written 
constitutions  means  more  than,  as  in  England,  the  right  to  publish 
without  preliminary  censorship,  being  responsible  for  such  acts  of 
publication  in  the  common  law  courts,  in  any  ordinary  way.  It  is 
lawful,  for  instance,  to  walk  upon  the  highway,  to  exercise  the  right 
of  free  locomotion,  yet  there  have  been  many  injunctions  where  a 
congregating  upon  highways,  or  even  the  right  of  free  locomotion  in 
certain  places,  has  been  restrained.  But  the  test  of  intention,  it 
seems  to  me,  works  as  well  here  as  in  the  other  case.  The  plaintiff 
claims  that  there  is  a  combination  to  boycott  his  business,  with  one 
overt  act.  The  e\'idence  of  such  combination  is  the  printing  of  his 
name  weekly  on  the  "  Unfair  List  "  of  the  official  journal  of  the  Federa- 
tion of  Labor,  coupled  with  the  expressed  intention  of  going  on  so  to 
print  it  in  every  journal  until  the  plaintiff  yields.  The  first  question 
is  simply  whether  there  was  a  combination  with  the  intention  of  con- 
trolling the  plaintiff's  lawful  liberty,  and  of  injuring,  boycotting  or 
destroying  his  business.  That  fact  seems  to  be  admitted ;  then  the 
same  question  will  arise  as  to  the  intention  of  the  publication  which 
is  the  cause  of  the  sentence  for  contempt.  Mr.  Gompers  himself 
asked  me  whether  he  had  not  the  right  to  print  the  fact  that  there 
was  a  trade  dispute  with  the  Buck  Stove  Company  in  his  own  news- 
paper as  part  of  his  right  to  freedom  of  the  press;  I  said  "certainly 
you  have.  You  can  print  it  once  at  least  as  matter  of  news ;  you 
can  doubtless  comment  upon  it  in  your  editorial  column ;  but  when 
you  print  it  in  every  issue  for  a  year  or  five  years,  and  moreover,  state 
that  you  intend  to  go  on  printing  this  Unfair  List  until  the  Buck 
Stove  Company  yields,  it  will  be  a  question  of  fact  whether  you  are 
printing  that  as  matter  of  news,  or  as  a  threat,  a  boycott ;  the  act  of 
a  combination  with  an  unlawful  aim."  It  may  be  difficult  for  us,  for 
you  and  me  or  for  lawyers  to  decide,  but  such  cases  are  very  often 
much  more  simple  to  a  jury  of  common-sense  men.  Go  before  that 
jury  if  you  can.  If  they  hold  that  it  is  a  matter  of  recurrent  interest, 
of  news,  that  you  should  print  every  week  a  story  about  this  trade 


284  CORPORATIONS 

dispute,  they  will  so  find.  If,  on  the  other  hand,  they  see  that  it  is 
part  of  an  organized  attempt  to  destroy  the  plaintiff's  business,  es- 
pecially when  coupled  with  a  threat  of  continuing  this  printing  for- 
ever in  the  editorial  column,  and  not  mere  matter  of  news,  they  will 
probably  find  the  other  way. 

I  conclude,  therefore,  that  we  should  think  long  and  carefully 
before  we  abandon  this  great  principle  of  our  English  law  preventing 
the  oppression  of  the  individual  by  the  multitude,  and,  in  the  law  of 
combination,  going  directly  to  the  ethical  motive  of  the  combine. 
It  has  been  a  commonplace  of  laymen  critics  that  the  law  is  not  moral, 
—  that  it  does  not  go  into  the  higher  issues,  —  that  it  is  easy  to  keep 
within  the  letter  of  the  law  while  morally  guilty  to  one's  neighbor 
or  to  the  State.  This  is  not  true  of  our  law  of  combination.  Let  us, 
therefore,  not  carelessly  give  up  this  one  great  domain  of  the  law  of 
private  right,  which,  based  both  on  our  English  history  and  the  pro- 
foundest  laws  of  economy  at  the  same  time,  rises  to  the  highest  stand- 
ard of  duty  to  one's  neighbor  and  to  the  State ;  the  one  great  body 
of  the  common  law  based  squarely  on  the  Golden  Rule. 


STATE   CONTROL  OF   PUBLIC   UTILITIES  ^ 
By  Bruce  Wyman  of  the  Boston  Bar 

(From  the  Harvard  Law  Review,  June,  19  ii) 

The  Public  Service  Corporation  has  been  placed  quite  completely  under 
the  regulating  powers  of  the  State,  principally  under  the  theory  that  it  is  a 
"business  affected  with  a  public  interest."  —  Editor's  Note. 


The  difference  between  public  callings  and  private  business  is  a 
distinction  in  the  law  governing  business  relations  which  has  always 
had,  and  will  always  have,  most  important  consequences.  Those  in  a 
public  calling  have  always  been  under  the  extraordinary  duty  to  serve 
all  comers,  while  those  in  a  private  business  might  always  refuse  to 
sell  if  they  pleased.  So  great  a  distinction  as  this  constitutes  a  differ- 
ence in  kind  of  legal  control  rather  than  merely  one  of  degree.  The 
causes  of  this  division  are,  of  course,  rather  economic  than  strictly  legal. 
And  the  relative  importance  of  these  two  classes  at  any  given  time, 
therefore,  depends  ultimately  upon  the  industrial  conditions  which 
prevail  at  that  period.  Thus  in  the  England  which  we  see  through 
the  medium  of  our  earliest  law  reports  the  medieval  system  with  its 

'  Copyright,  191 1,  by  Bruce  Wyman  —  being  in  large  part  the  Preface  to  Wyman  on 
Public  Service  Corporations,  reprinted  by  permission  of  Baker,  Voorhis  &  Co. 


CORPORATIONS  285 

established  monopolies  called  for  the  legal  requirement  of  indiscrimi- 
nate service  from  those  engaged  in  almost  all  employments.  There 
followed  in  succeeding  centuries  an  expansion  of  trade  which  gradually 
did  away  with  the  necessity  for  coercive  law.  Indeed  in  the  early  part 
of  the  nineteenth  century,  free  competition  became  the  very  basis  of 
the  social  organization,  with  the  consequence  that  the  recognition  of 
the  public  callings  as  a  class  almost  ceased.  It  is  only  in  very  recent 
years  that  it  has  again  come  to  be  recognized  that  the  process  of  free 
competition  fails  in  some  cases  to  secure  the  public  good.  And  it  is 
now  reluctantly  admitted  that  state  control  is  again  necessary  o^^er 
such  lines  of  industry  as  are  affected  with  a  public  interest.  Thus  with 
varying  importance  the  distinction  between  the  public  callings  and 
the  private  callings  has  been  present  in  our  law  from  the  earliest  times 
to  the  present  day. 

II 

Some  restraint  has  always  been  exercised  over  such  lines  of  industry 
as  are  of  vital  interest  to  the  public.  The  establishment  of  the  peace, 
the  protection  of  the  weak  against  the  physical  violence  of  the  strong, 
is  a  fundamental  function  of  government ;  but  of  equal  importance  and 
of  almost  equal  antiquity  is  the  protection  of  the  common  people 
against  the  greed  and  oppression  of  the  powerful.  In  matters  not 
vital  to  the  life  and  well-being  of  mankind  the  laws  of  society  may  be 
left  free  to  operate  without  limitation  by  the  sovereign  power ;  but  in 
all  that  has  to  do  with  the  necessaries  of  life  the  protection  of  the  sov- 
ereign is  extended.  The  modern  state  protects  equally  against  physi- 
cal violence  and  against  oppression  that  affects  the  means  of  living. 

As  a  result  of  an  economic  evolution  there  have  come  into  being  in 
the  last  generation  a  considerable  number  of  employments  which 
have  gained,  if  not  a  legal  monopoly,  at  any  rate,  as  a  result  of  cir- 
cumstances, a  virtual  monopoly  in  matters  of  public  necessity.  The 
positive  law  of  the  public  calling  is  the  only  protection  that  the  public 
have  in  a  situation  such  as  this,  where  there  is  no  competition  among 
the  sellers  to  operate  in  their  favor.  So  much  has  our  law  been  per- 
meated with  the  theory  of  laissez  faire,  which  was  but  lately  so  prom- 
inent in  the  policy  of  our  state,  that  the  admission  has  been  made  with 
much  hesitation  that  state  control  is  ever  necessary.  But  the  modern 
conclusion,  after  some  bitter  experience,  is  that  freedom  can  be  allowed 
only  where  conditions  of  virtual  competition  prevail,  for  in  conditions 
of  virtual  monopoly,  without  stern  restrictions,  there  is  always  great 
mischief. 

It  has  been  remarked  many  times  that  the  common  law  may  be 
relied  upon  to  meet,  by  the  continual  development  of  its  fundamental 
principles,  the  complex  conditions  created  by  the  constant  evolution 
in  the  industrial  organization.     One  of  the  most  striking  of  modern 


286  CORPORATIONS 

instances  of  this  capacity  of  growth  in  the  common  law  is  the  aston- 
ishing progress  in  the  working  out  of  the  detail  of  the  exceptional 
law  governing  the  conduct  of  public  callings.  In  recent  times  there 
undoubtedly  is  an  increasing  need  of  this  stricter  regulation  of  all 
employments  which  appear  to  be  aiTected  with  a  public  interest. 
Great  power  brings  as  its  consequence  the  need  of  control  of  that 
power  for  the  good  of  the  whole  people. 

Ill 

Whether  a  business  is  public  or  not  depends  in  last  analysis  upon 
the  situation  of  the  public  with  respect  to  it.  Are  there  enough  of 
such  purveyors  to  serve  the  public?  or  are  there,  for  permanent 
reasons,  never  enough?  If  so,  there  will  be  virtual  competition; 
if  not,  there  will  be  virtual  monopoly.  It  will  be  found  that,  in  all 
such  businesses,  competition,  although  from  a  legal  point  of  view 
possible,  is  from  the  economic  point  of  view  improbable.  So  far  as 
one  can  see,  virtual  competition  is  at  an  end  in  these  industries,  and 
virtual  monopoly  will  henceforth  prevail.  Therefore  it  must  be  said 
that  the  public  has  now  an  interest  in  the  conduct  of  these  businesses 
by  their  owners.  They  are  affected  with  a  public  interest,  since  these 
agencies  are  carried  on  in  a  manner  to  make  them  of  public  conse- 
quence. Therefore,  having  devoted  their  property  to  a  use  in  which 
the  public  has  an  interest,  they  in  effect  have  granted  to  the  public  an 
interest  in  that  use,  and  must  submit  to  be  controlled  by  the  public  for 
the  common  good  to  the  extent  of  the  interest  they  have  created. 
Plainly  we  have  in  the  accepted  use  of  these  phrases  the  manifesta- 
tion of  a  deep-seated  change  in  habits  of  thought.  Only  twenty-five 
years  ago  the  general  feeling  as  to  every  sort  of  industrial  relation  was 
that  it  was  better  to  leave  all  alone,  that  it  was  better  to  leave  people 
to  work  out  their  own  salvation.  But  of  late  years  we  have  been 
calling  upon  the  state  to  save  us  from  monopoly  in  all  its  forms ;  and 
we  are  impatient  if  it  delays. 

The  present  situation  is  plain  enough  to  all  of  us.  Whatever 
way  we  turn  we  depend  upon  a  service  that  is  public  in  character. 
Not  only  in  long  travels  but  in  short  journeys  we  employ  common 
carriers  —  railroads  and  steamships,  coaches  and  cabs,  street  cars  and 
omnibuses,  the  subway  car  and  the  elevated  train.  If  we  ship  goods 
there  are  various  transportation  services  at  our  disposal  beside  rail- 
roads and  ships,  such  as  express  companies  and  dispatch  lines,  re- 
frigerator lines  and  tank  lines.  If  we  are  journeying  ourselves  we 
eat  at  hotel  restaurants,  and  put  up  at  public  inns,  or  travel  in  palace 
cars  and  lodge  ourselves  in  sleeping  cars.  Our  freight  in  its  transit 
has  its  needs  attended  to  —  for  our  goods,  warehouses,  for  our  grain, 
elevators,  for  our  cattle,  stockyards,  and  for  our  exports,  docks.     In 


CORPORATIONS  287 

almost  every  community,  even  relatively  small,  we  have  for  our  house- 
hold needs  gas,  electricity,  water  supply  and  sewerage  ser\ice  pro\-ided 
for  us,  usually,  except  the  last  two,  by  private  companies  in  public 
service,  but  even  where  the  service  is  provided  by  the  municipality  it 
is  subject  to  the  same  law  go\-erning  public  ser\-ice.  For  speedy  com- 
munication in  our  business  and  pleasure,  we  have  the  telephone  and 
telegraph  in  common  use,  and  ticker-service  and  messenger  call  for 
special  needs.  One  may  judge  by  this  incomplete  list  how  common  to 
every  part  of  our  modern  life  are  the  various  public  serxdces,  and  how 
necessary  it  is  that  they  should  be  required  by  law  to  serve  us  all  with 
adequate  facilities  for  reasonable  compensation  and  without  dis- 
crimination. 

W 

The  spirit  of  our  present  age  demands  that  these  great  business 
enterprises  shall  be  conducted  in  accordance  with  the  requirements  of 
society.  The  present  program  of  organized  society  is  to  see  to  it 
that  those  who  have  gained  a  substantial  control  of  their  market  shall 
not  be  left  free  to  exploit  those  who  look  to  them  to  supply  their  needs. 
Men  now  see  clearly  that  freedom  of  action  may,  even  in  the  industrial 
world,  work  injuriously  for  the  public ;  and  it  must  then  be  restrained 
in  the  public  interest.  We  have  seen  the  results  of  unrestrained 
power;  and  we  no  longer  wish  those  who  have  control  over  our 
destinies  left  free  to  do  with  us  as  they  please. 

While  state  regulation  is  the  prevailing  philosophy  of  the  people  at 
the  beginning  of  the  twentieth  century,  it  must  be  borne  in  mind  that 
this  has  been  the  result  of  a  gradual  progress  of  thought,  and  that  this 
progress  has  not  affected  all  men  equaUy.  Now,  as  at  all  times,  there 
are  conservatives  and  radicals,  the  former  as  far  behind  the  prevailmg 
spirit  of  the  time  as  the  latter  go  beyond  it.  In  every  change  of  popular 
thought  there  have  been  those  who  have  been  unable  to  appreciate 
the  change ;  and  in  every  such  change  there  have  been  those  who  are 
unable  justly  to  estimate  the  true  meaning  of  the  change. 

Many  persons  still  hold  conservative  views  as  to  the  application  of 
the  law  of  public  callings  to  modern  conditions.  They  believe  that 
the  conductors  of  every  business,  however  necessary  to  public  welfare, 
should  do  whatever  seems  good  in  their  own  eyes.  But  the  most  of 
men  appreciate  that  the  law  has  already  taken  control  of  the  situation 
for  all  time.  It  is  hardly  too  much  to  say  that  the  efficient  regulation 
of  the  public  employments  by  sufficient  law  is  the  most  pressing  prob- 
lem confronting  this  nation ;  and  it  must  be  met  without  further 
hesitation. 

V 

In  this  crisis  of  affairs  the  people  must  be  assured  that  the  law  is 
adequate  to  deal  with  the  situation,  that  it  has  not  only  elaborated 


288  CORPORATIONS 

detail  to  meet  obvious  wrongs  seldom  defended,  but  also  enlightened 
comprehension  to  deal  with  the  large  policies  openly  justified,  which  are 
truly  inconsistent  with  public  duty.  That  those  who  profess  a  public 
employment  owe  the  utmost  public  service  should  be  generally  accepted 
as  the  fundamental  principle  upon  which  the  law  governing  public  em- 
ployment is  to  be  based.  It  is  not  agreed,  however,  how  far  this  prin- 
ciple should  be  pressed ;  there  is  a  clash  of  interests  here,  and  there 
is  an  inclination  on  the  part  of  those  who  conduct  the  public  services 
to  contest  every  issue.     This  is  not  even  an  enlightened  selfishness. 

The  time  has  come  when  extension  of  the  law  and  enforcement  of  it 
should  be  the  avowed  attitude  of  all  conservative  persons  who  wish 
the  perpetuation  of  present  conditions.  It  would  be  well,  therefore, 
if  the  restless  and  the  doubting  who  see  many  abuses  and  many  wrongs 
in  the  conduct  of  our  public  services  without  prompt  remedy  or  ade- 
quate redress,  might  be  relieved  and  heartened  by  being  shown  that  the 
common  law  is  adequate  to  deal  with  all  real  industrial  wrongs,  and  that 
with  the  aid  of  remedial  statutes  the  administration  of  the  law  can 
be  relied  upon.  The  proprietors  of  the  public  services  should  be  told 
sharply  that  they  may  not  adopt,  to  the  prejudice  of  their  public, 
various  profitable  policies,  and  then  justify  them  as  inherent  rights 
which  other  men  in  ordinary  business  may  use  in  the  advancement  of 
their  interests. 

There  is  now  fortunately  almost  general  assent  to  state  control  of 
the  public  service  companies.  Two  ways  only  can  be  found  to  exercise 
such  control.  One  way,  that  advocated  by  the  most  radical  statesmen, 
is  the  government  ownership  and  operation  of  these  services.  The 
other  way,  which  is  in  fact  the  conservative  method  of  dealing  with 
the  problem,  is  the  control  of  the  rates  and  practices  of  the  utilities 
for  the  public  good.  One  or  the  other  of  these  methods  must  be 
finally  adopted.  The  conservative  method  is  now  on  trial.  It 
behooves  the  lawyers  to  see  to  it  that  it  be  so  intelligently  tried,  and 
that  the  law  applicable  to  the  case  be  so  accurately  enforced,  that  we 
may  not  be  driven  perforce  to  the  radical  alternative  of  public  owner- 
ship. 

VI 

All  businesses  both  public  and  private  are  subject,  to  be  sure,  to 
that  general  police  power  of  the  state  whereby  in  any  civilized  society 
the  effort  is  made  so  to  order  things  that  one  may  not  use  his  own  so  as 
to  injure  another.  But  the  comparison  of  the  large  amount  of  regula- 
tion which  it  is  considered  proper  for  the  state  to  impose  in  regard 
to  public  services  with  the  small  amount  of  regulation  which  it  is 
considered  proper  for  the  state  to  enforce  in  regard  to  private  business 
is  in  itself  significant  enough.  The  difference  which  is  shown  is  more 
than  one  of  degree,  it  becomes  one  in  kind.       It  is  only  in  public 


CORPORATIONS  289 

business  that  the  law  imposes  affirmative  duties ;  generally  speaking, 
the  duties  imposed  upon  those  in  private  business  are  negative.  The 
law  says  to  those  in  public  business  you  must  do  this  for  this  applicant, 
and  you  must  do  it  thus.  To  those  in  private  business  it  says  you 
must  not  do  this,  or  if  you  do  this  you  must  do  it  thus.  This  is 
the  chief  distinction  between  public  calling  and  private  calling. 

General  principles  may  now  be  developed  and  corollaries  to  them 
established  by  the  use  and  with  the  coordination  of  cases  from  a 
variety  of  public  employments.  Not  only  are  the  fundamental  prin- 
ciples true  as  to  all  public  employments  —  that  all  must  be  served, 
adequate  facilities  must  be  provided,  reasonable  rates  must  be  charged, 
and  no  discriminations  must  be  made.  But  also  in  dealing  with  the 
minor  detail  of  these  principles,  cases  from  one  service  will  be  found  in 
point  in  another  —  as  to  what  conditions  there  are  precedent  to  service, 
what  will  excuse  failure  in  provision  of  facilities,  what  is  a  proper  basis 
for  calculating  rates  and  what  differences  constitute  discrimination. 
This  is  the  way  our  law  grows,  by  breaking  down  the  partitions  between 
departments  of  the  law  which  have  been  built  up  separately.  The 
public  service  law  has  at  length  reached  a  stage  of  development  in 
which  it  may  be  possible  to  state  its  principles  with  some  degree  of 
confidence.  It  is  only  within  the  last  few  years  that  it  would  have 
been  within  the  range  of  possibility  to  do  this. 

Twenty-five  years  ago  the  public  services  that  were  recognized  were 
still  few,  and  the  law  as  to  them  imperfectly  realized.  It  was  known 
from  olden  times  that  those  who  professed  a  public  employment  must 
serve  all  at  a  reasonable  rate.  As  to  the  duty  to  serve,  it  was  recog- 
nized that  there  were  certain  excuses.  As  to  the  restriction  to  reason- 
able rates,  there  was  no  standard  unless,  indeed,  the  customary  charge. 
But  the  important  duty  to  provide  adequate  facilities  had  hardly 
advanced  beyond  the  general  law  as  to  negligence.  And  the  duty 
not  to  discriminate,  which  according  to  present  ideas  is  the  most  im- 
portant of  all,  was  denied  altogether  by  the  weight  of  authority. 
Even  ten  years  ago  when  these  four  obligations  had  become  generally 
recognized,  the  details  as  to  them  in  regard  to  any  particular  employ- 
ment had  been  worked  out  only  in  very  fragmentary  manner ;  but 
at  the  present  day  it  is  just  being  appreciated  that  rapid  progress  may 
be  made  by  the  general  recognition  of  the  unity  of  the  public  service 
law,  whereby  cases  as  to  one  calling  may  be  used  to  show  the  law  in  all. 
It  is  only  in  our  present  day  that  the  attempt  to  treat  the  public  service 
law  as  a  consistent  body  of  law  could  be  made  with  any  hope  of  suc- 
cess. 

VII 

As  time  goes  on,  one  finds  himself  almost  among  the  conservatives 
in  standing  by  the  original  program  for  state  control.    And  yet 


290  CORPORATIONS 

one  may  still  hope  that  the  state  will  as  far  as  possible  confine  itself 
to  regulation,  leaving  the  companies  to  work  out  their  own  problems 
of  management.  State  control  need  seldom  go  further  than  regulation 
in  this  sense.  Whatever  the  companies  may  do  should  be  subject  to 
revision  by  the  constituted  authorities.  There  should  be  swift  repara- 
tion provided  for  any  individual  who  has  suffered  harm  in  the  mean- 
time. And  that  should  be  the  full  extent  of  government  regulation, 
generally  speaking.  When  the  state  goes  further,  and  attempts  to 
dictate  as  to  the  policies  which  the  companies  shall  adopt,  it  usually 
goes  too  far.  Legislation  going  to  this  extent  really  crosses  the  line 
which  divides  state  control  from  state  operation. 

It  has  been  said  above  that  there  are  two  general  ways  of  dealing 
with  the  problem  —  state  control  and  state  operation.  Few  would 
stand  out  for  uncontrolled  action  without  state  supervision ;  few 
would  believe  in  the  permanence  of  state  ownership  combined  with 
private  operation.  We  must  choose  between  state  control  which  we 
know  about  and  state  operation  with  its  unknowable  consequences. 
The  restriction  which  the  federal  government  has  thus  far  put  upon 
itself  in  regulating  interstate  carriage  is  well  advised.  The  Interstate 
Commerce  Commission  still  has  virtually  only  the  power  of  revision. 
In  some  of  the  states,  however,  the  commissions  are  virtually  given 
the  power  to  determine  of  their  own  motion  what  the  carrier  shall  do 
for  the  public.  This  imposes  government  operation,  without  relieving 
the  railroad  from  its  reponsibilities  in  any  way. 

This  does  not  mean  that  everything  shall  be  left  to  the  discretion 
of  the  companies,  as  the  conservatives  claim.  Discretion  should  be 
left  to  the  companies,  but  it  should  be  made  clear  that  this  discretion 
may  be  abused.  Although  the  companies  should  be  left  as  free  as 
possible  to  work  out  their  own  problems  within  the  law,  they  should 
be  warned  that  they  must  not  go  outside  the  limits  which  the  law  is 
fixing.  For  example,  the  railroad  people  once  claimed  the  right  to 
make  such  rates  as  it  seemed  to  them  would  be  for  the  best  interests  of 
all  concerned.  But  so  long  as  this  power  is  left  in  the  hands  of  the 
railway  management  Avithout  power  of  review  by  any  authority  upon 
any  fundamental  principle,  it  is  in  the  hands  of  the  railroad  officials  to 
build  up  an  artificial  market  where  the  natural  conditions  are  adverse, 
or  to  turn  an  industrious  city  into  a  wilderness  again.  It  is  believed 
that  these  are  too  great  powers  to  intrust  to  private  hands  without 
governmental  control  based  upon  some  recognized  standards.  Indeed 
the  public  law  in  this,  as  in  the  other  cases,  should  put  sufficient  limita- 
tions upon  any  business  policy,  however  profitable,  which  comes  in 
conflict  with  the  fundamental  principle  of  equal  service  to  all. 


CORPORATIONS  291 

VIII 

The  whole  problem  of  the  regulation  of  public  utilities  has  been 
seen  more  steadily  of  late  years.  It  has  been  appreciated  that  in 
dealing  with  a  public  service  company  the  state  is  really  dealing 
with  a  private  business  concern,  however  many  the  obligations  may 
be  which  it  owes  to  the  public.  The  risks  its  proprietors  run  are  such 
that  their  financial  management  should  be  left  to  them,  unless  they 
be  shown  to  be  taking  profit  with  outrageous  disregard  of  their  public 
obligations.  With  these  broader  views,  it  would  be  surprising  if  more 
consideration  were  not  paid  to  the  rights  of  the  owners  of  public  serv- 
ices. Perhaps  for  the  moment  there  is  danger  that  in  emphasizing 
their  duties  their  rights  may  be  forgotten.  That  the  courts  are 
approaching  this  great  issue  of  state  control  with  the  enlightened 
policy  of  fair  compromise  of  conflicting  interests  is  plain.  Regulation 
of  public  service  corporations,  which  perform  their  duties  under  con- 
ditions of  necessary  monopoly,  will  occur  with  greater  and  greater 
frequency  as  time  goes  on.  It  is  a  delicate  and  dangerous  function, 
and  ought  to  be  exercised  with  great  caution.  Our  social  system  rests 
largely  upon  the  basis  of  private  property,  and  that  community  which 
seeks  to  alter  this  will  soon  discover  its  error  in  the  disaster  which 
follows. 

But  no  one  who  is  inspired  to  any  degree  by  the  spirit  of  the  age 
would  entertain  the  suggestion  that  we  ought  to  work  to  turn  the 
law  back  to  that  time  twenty- five  years  ago  when  those  who  had  the 
control  of  public  utilities  were,  by  a  failure  to  apply  the  law  promptly, 
left  to  deal  mth  their  public  as  they  pleased.  The  most  of  us  of  this 
generation  not  only  believe  in  state  control  of  the  public  employments, 
but  in  its  enforcement  so  far  as  it  is  necessary.  For  liberty  does  not 
mean  to  men  at  the  beginning  of  the  twentieth  century  what  it  meant 
to  men  at  the  beginning  of  the  nineteenth  century.  When  the  theory 
of  laissez  faire  prevailed  it  meant  liberty  for  the  individual  to  do  as  he 
pleased  with  his  own.  To-day  we  know  that  in  order  that  a  man  shall 
be  free  he  must  be  protected  from  those  who  would  do  with  him  as 
they  pleased.  In  order  to  protect  the  individual  from  the  abuse  of 
their  power  by  others,  we  know  that  there  can  no  longer  be  freedom  of 
action  for  those  who  have  gained  undue  power.  We  are  beginning  to  ap- 
preciate that  paradox  which  has  come  down  to  us  from  the  sages  of  old, 
that  liberty  is  not  to  be  had  without  restraint.  In  a  modern  state  we 
are  no  longer  content  in  seeing  that  the  weak  are  safe  from  the  violence 
of  the  strong.  Not  until  the  people  generally  are  protected  from  the 
oppression  of  those  who  control  their  destinies  will  there  be  real 
liberty. 


292  CORPORATIONS 


IX 


We  are  just  entering  upon  a  great  and  important  development 
of  the  common  law.  Enormous  business  combinations,  \drtual  monop- 
olization of  the  necessaries  of  life,  the  strife  of  labor  and  capital,  now 
the  concern  of  the  economist  and  the  statesman,  may  prove  susceptible 
of  legal  control  through  the  doctrines  of  the  law  of  public  callings. 
These  doctrines  are  not  yet  clearly  defined.  General  rules,  to  be  sure, 
have  been  established,  but  details  have  not  been  worked  out  by  the 
courts ;  and  upon  the  successful  working  out  of  these  details  depends 
to  a  large  extent  the  future  economic  organization  of  the  country. 
Only  if  the  courts  can  adequately  control  the  public  services  in  all 
contingencies  may  these  businesses  be  left  in  private  hands. 

This  principle  of  state  control  does  not  lead  one  to  socialism ;  in- 
deed, it  saves  one  from  socialism  if  truly  understood.  It  is  only  in 
those  few  businesses  where  the  conditions  are  monopolistic  that  danger- 
ous power  over  their  public  has  been  attained  by  those  who  have  the 
control.  In  most  businesses  the  virtual  competition  which  prevails 
puts  the  distributors  at  the  mercy  of  their  public.  In  current  opinion 
the  recognition  of  this  distinction  is  manifest.  Men  are  as  eager  for 
an  open  market  as  ever ;  but  they  wish  the  control  of  monopoly  to 
insure  it.  The  demand  is  for  freer  trade  where  competition  prevails 
and  stricter  regulation  where  monopoly  is  found.  So  long  as  virtual 
competition  prevails  there  is  no  necessity  for  coercive  law,  since 
there  is  then  no  power  over  the  purchasing  public.  But  where  in 
any  business  \drtual  monopoly  is  permanently  established  the  people 
will  not  be  denied  in  their  deliberate  policy  of  effectual  regulation  of 
such  public  services  for  the  common  good. 

Only  to  this  extent  the  individualistic  ideal  of  society  gives  place  to 
the  coUectivist  policy.  It  is  with  true  appreciation  of  the  real  issue 
that  we  are  contending  for  state  control  to  gain  individual  liberty. 
It  may  once  have  been  the  ideal  of  industrial  freedom  that  a  man 
might  do  as  he  pleased  with  his  own ;  in  any  event  that  is  no  longer 
our  notion  of  social  justice.  It  is  believed  now  that  with  increase 
in  power  over  the  particular  market  comes  increase  in  responsibility 
to  the  dependent  public.  Socialism  would  destroy  all  private  interests 
in  the  name  of  the  public ;  regulation  would  preserve  private  interests 
by  reconciling  them  with  public  right.  Socialism  attacks  all  capital 
to  whatever  business  it  is  devoted ;  regulation  grapples  with  monopoly 
only  when  it  is  convinced  that  there  is  no  other  way  to  safeguard  the 
interests  of  the  public. 

X 

So  far  as  one  can  judge,  the  future  holds  no  possibility  of  the  coercive 
regulation  of  the  conduct  of  all  businesses,  which  it  is  apparent  would 


CORPORATIONS  293 

be  one  form  of  socialism.  Regulation  of  this  extreme  sort  will  be 
confined  to  those  businesses  which  are  affected  with  a  public  interest. 
It  is,  however,  certain  that  the  other  businesses  than  those  now 
within  this  classification  will  be  brought  within  it.  Indeed,  the 
generalization  must  have  occurred  to  the  reader  that  all  businesses 
which  have  a  virtual  monopoly  firmly  established  in  the  nature  of 
things,  are  so  affected  with  a  public  interest  as  to  be  within  the  class 
of  callings  which  are  considered  public  employments.  What  branches 
of  industry  will  eventually  be  considered  of  such  public  importance 
as  to  be  included  within  the  category  of  public  callings  it  would  be 
rash  to  predict.  But  no  one  can  study  the  authorities  on  this  subject 
without  feeling  their  great  potentialities.  In  private  businesses, 
one  may  sell  or  not  as  one  pleases,  manufacture  what  qualities  one 
chooses,  demand  any  price  that  can  be  gotten,  and  give  any  rebates 
that  are  advantageous.  It  is  because  the  modern  trusts  are  carrying 
on  a  predatory  competition  under  the  cover  of  this  law  that  we  have 
the  trust  problem.  All  this  time  in  pubKc  businesses  one  must  serve 
all  that  apply  without  exclusive  conditions,  provide  adequate  facilities 
to  meet  all  the  demands  of  the  consumer,  exact  only  reasonable  charges 
for  the  services  that  are  rendered,  and  between  customers  under 
similar  circumstances  make  no  discriminations.  If  this  law  might  be 
enforced  against  the  trusts,  perhaps  a  solution  of  the  problem  would 
be  found. 


THE  ANTHRACITE  COAL  INDUSTRY  AND  THE  BUSINESS 
AFFECTED   WITH  A  PUBLIC  INTEREST 

By  Alexander  A.  Bruce  of  the  Supreme  Court  of  North 

Dakota 

(From  the  Michigan  Law  Review,  June,  1909) 

From  the  discussion  of  public  utilities,  such  as  railroads,  the  question 
naturally  arises,  Can  the  doctrine  of  a  "business  affected  with  a  public 
interest  "  be  expanded  to  cover  other  kinds  of  industry,  especially  those 
usually  called  natural  monopolies  ?  The  following  article  raises  the  ques- 
tion in  an  interesting  manner.  —  Editor's  Note. 

The  constitutions,  state  and  federal,  do  not  anywhere  guarantee 
any  absolute  property  rights  nor  right  to  liberty.  The  guarantee 
is  merely  that  no  person  shall  be  deprived  of  life,  liberty  and  property 
without  due  process  of  law.  The  right  to  liberty  and  property  was 
never  absolute  under  the  English  law,  and  the  American  constitu- 
tions have  never  been  construed  as  going  further  than  guaranteeing 


294  CORPORATIQNS 

the  continuance  of  the  rights  which  existed  at  the  time  of  their 
adoption.^ 

The  doctrine  expressed  by  the  maxim  salits  populi  suprema  est  lex 
indeed,  expresses  an  underlying  principle  both  of  the  common 
law  of  England  and  of  the  constitutional  law  of  the  United  States. 
Subject  to  it  all  property  is  owned  and  controlled  and  all  property 
rights  exist,  and  subject  to  it  the  American  constitutions  themselves 
may  be  said  to  have  been  ratified  and  adopted.  The  principle  just 
expressed  does  not  stop  at  merely  justifying  the  destruction  of  tangible 
property  in  certain  instances  where  the  further  existence  of  the  same 
threatens  injury  to  the  public,  as  in  the  case  of  the  razing  of  buildings 
and  other  property  to  prevent  the  spread  of  a  conflagration,  or  the 
summary  destruction  of  property  which  has  come  within  the  definition 
of  a  nuisance  per  se,  but  extends  to  the  control  of  property  rights 
and  the  limitation  of  their  enjoyment,  in  obedience  to  the  broad  idea 
that  the  ultimate  good  of  the  community  as  a  whole  is  the  underlying 
principle  of  all  government  and  of  the  governmental  sanction  and 
recognition  of  any  property  rights  in  the  individual  at  all.  We  may 
almost  say  that  the  right  to  the  private  ownership  of  property  has 
only  been  recognized  by  the  law  because  the  existence  of  such  a 
right  has  been  deemed  most  beneficial  to  the  community  as  a  whole. 
It  is  now  and  has  been  for  a  long  time  conceded  among  the  English 
speaking  peoples  that  in  the  majority  of  instances  as  near  an  approach 
to  absolute  private  ownership  and  control  as  is  possible  is  the  best 
public  policy,  and  that  by  it  self-respect  is  stimulated  and  enterprise, 
thrift  and  love  of  country  engendered.  But  there  always  have  been 
and  always  will  be  cases  where  different  considerations  apply,  and 
where  a  governmental  limitation  on  this  right  has  been  and  always 
will  be  deemed  to  contribute  more  to  the  welfare  of  the  state  than 
unlimited  freedom.  This  for  a  long  time  has  been  held  to  be  the  case 
where  private  property  or  the  right  to  use  or  control  the  same  has 
been  or  is  affected  with  a  public  interest.  It  then  ceases  to  be  juris 
privati  only.  Property  becomes  clothed  with  a  public  interest  when 
it  is  used  in  a  manner  to  make  it  of  public  consequence  and  to  affect 
the  community  at  large.^  It  is  true  that  originally  the  class  idea 
largely  prevailed  in  the  law  of  England,  and  that  this  feudal  theory, 
coupled  with  the  natural  selfishness  of  the  dominant  military  aristoc- 
racy, occasioned  the  earlier  restrictions  and  limitations  to  be  imposed 
almost  entirely  upon  the  lower  and  laboring  classes.  But  this  was 
and  only  could  be  for  a  limited  time.  As  the  democratic  idea  grew 
and  the  state  became  more  and  more  commercial  and  less  and  less 

1  This  can  hardly  be  said  to  have  been  the  case  with  the  guarantees  of  religious  liberty 
contained  in  the  so-called  American  Bill  of  Rights  and  in  the  various  state  constitutions. 
Religious  liberty  was  hardly  known  before  the  adoption  of  the  American  Constitution. 

2  Munn  vs.  Illinois,  94  U.  S.  113. 


CORPORATIONS  295 

military,  the  classes  affected  were  extended  and  the  principles  and 
theories  by  which  the  rich  and  powerful  sought  to  justify  their  control 
over  the  serving  poor  afforded  the  justification  for  the  control  of  the 
rich  when  they  in  turn  came  to  be,  as  in  the  case  of  our  great  railroad 
magnates  of  to-day,  the  carrying  and  serving  agencies  of  the  commu- 
nity. There  can  be  but  little  doubt  that  the  carter  and  the  pack  mule 
owner  and  the  ferryman,  who  were  the  original  common  carriers,  were  at 
first  regulated  because  they  were  "poor  de\ils."  This  was  no  doubt 
also  true  of  the  innkeeper,  the  baker  and  the  laborer  generally.  But 
these  persons  were  none  the  less  engaged  in  necessary  and  often  almost 
monopolistic  public  callings  and  their  regulation  redounded  to  the 
good  of  the  majority  of  all  classes.  They,  too,  held  their  landed 
possessions  from  their  lords  and  relied  upon  their  lords  for  protection 
from  highway  robbers  and  their  other  enemies.  This  protection  was 
especially  necessary  to  the  common  carrier,  whose  route  often  lay 
over  wild  and  robber  infested  highways  and  bypaths.  It  is  also  quite 
probable  that  there  was  a  medieval  and  a  feudal  philosophy  beneath 
it  all,  and  that  the  aristocracy  who  imposed  the  regulations  argued 
that  they  themseh'es  had  their  duties  to  perform  in  the  social  organism, 
the  duties  of  free  military  service  to  their  sovereign  and  of  protection 
to  their  tenants  and  retainers,  and  that  their  liberties  were  also  re- 
stricted only  in  another  way.  They  no  doubt  argued  that  there  was, 
or  should  be,  a  social  duty  on  the  part  of  those  who  could  only  labor 
and  carry  to  serve  them  and  the  public  for  a  reasonable  rate  and  in  a 
reasonable  manner,  the  same  as  there  was  upon  themselves,  the 
fighters,  to  don  their  armor  when  called  upon  and  to  follow  their 
sovereign  to  battle,  and  to  protect  the  poor  from  pillage  and  from 
robbery.  The  whole  feudal  idea,  indeed,  was  one  of  public  service. 
Service  perhaps  at  first  culminating  in  a  landed  aristocracy  and  in  a 
monarch,  but  in  a  social  system  in  which  the  monarch  was  in  a  large 
sense  the  state.  It  was  but  a  step  to  substitute  the  popular  for  the 
personal  sovereign.  It  was  from  an  early  time  indeed  insisted,  that 
"the  splendor  and  powers  of  the  crown  were  attached  to  it  for  the 
benefit  of  the  people  and  not  for  the  private  gratification  of  the  sover- 
eign," and  "that  the  prerogatives  of  the  crown  were  not  given  for  the 
personal  advantage  of  the  king,  but  they  were  allowed  to  exist  because 
they  were  beneficial  to  the  public."  ^  The  right  of  governmental 
regulation  has  always  been  conceded  where  the  unrestricted  use  of 
property  or  of  liberty  has  injuriously  affected  the  health  or  the  morals 
of  the  community.  Every  such  business  or  exercise  of  indi\'idual  or 
property  rights  is  deemed  to  be  affected  with  a  public  interest,  and  in 
such  cases  governmental  interference  and  control,  if  at  all  reasonable, 
is  and  always  has  been  justified.     These  are  the  cases  in  which  the 

'  Chitty,  Prerogatives  4;   Rorke  vs.  Daysell,  Term.  R.  410.     See  Munn  vs.  Illinois,  94 
U.S.  113. 


296  CORPORATIONS 

so-called  police  power  of  the  state  is  usually  exercised.^  There  are 
other  cases,  however.  Property  becomes  affected  with  a  public 
interest  when  it  is  devoted  to  a  use  in  which  the  public  has  an  interest, 
a  use  by  which  the  owner,  in  effect,  grants  to  the  public  an  interest. 
In  such  cases  the  owner  must  submit  to  be  controlled  by  the  public 
for  the  common  good  to  the  extent  of  the  interest  he  has  thus  created. 
He  may,  in  most  instances,  withdraw  his  grant  by  discontinuing  the 
use ;  but  so  long  as  he  maintains  the  use  he  must  submit  to  the 
control.- 

"A  man,"  says  Lord  Hale  in  his  treatise  De  Portihus  Maris, ^ 
"for  his  own  private  advantage,  may,  in  a  port  or  town,-  set  up  a 
wharf  or  crane,  and  may  take  what  rates  he  and  his  customers  can 
agree  for  cranage,  wharfage,  housellage,  pesage,  for  he  doth  no  more 
than  is  lawful  for  any  man  to  do,  viz :  makes  the  most  of  his  own.  If 
the  King  or  subject  have  a  public  wharf,  unto  which  all  persons  that 
come  to  that  port  must  come  and  unlade  or  lade  their  goods  as  for  the 
purpose,  because  they  are  the  wharfs  only  licensed  by  the  Queen,  or 
because  there  is  no  other  wharf  in  that  port,  as  it  may  fall  out  where  a 
port  is  newly  erected ;  in  that  case  there  cannot  be  taken  arbitrary  and 
excessive  duties  for  cranage,  wharfage,  pesage,  etc.,  neither  can  they  be 
enhanced  to  an  immoderate  rate ;  but  the  duties  must  be  reasonable 
and  moderate,  though  settled  by  the  King's  license  or  charter.  For 
now  the  wharf,  and  crane  and  other  conveniences  are  affected  with  a 
public  interest,  and  they  cease  to  be  juris  privati  only ;  as  if  a  man  set 
out  a  street  in  new  building  on  his  own  land,  it  is  now  no  longer  bare 
private  interest,  but  is  affected  by  a  public  interest."  So,  too,  it  was 
said  by  Lord  Ellenb rough  that  "there  is  no  doubt  that  the  general 
principle  is  never  both  in  law  and  justice,  that  every  man  may  fix 
whatever  price  he  pleases  upon  his  own  property  or  the  use  of  it. 
But  if  for  a  particular  purpose,  the  public  have  a  right  to  resort  to 
his  premises  and  make  use  of  them  and  he  have  a  monopoly,  he  must, 
as  an  equivalent,  perform  the  duty  attached  to  it  on  reasonable 
terms."  ^ 

It  is  true  that  Mr.  Justice  Field,  in  his  dissenting  opinion  in  the 
case  of  Munn  vs.  Illinois,^  takes  the  position  that  no  such  right  of 
governmental  control  ever  existed  at  the  common  law,  except  where 
the  public  health  and  morals  were  directly  affected,  or  where  special 
privileges  had  been  granted  to  the  person  sought  to  be  controlled. 

*  Lake  View  vs.  Rose  Hill  Cemetery,  70  111.  192 ;  Potter's  Dwarris  444.  In  1 229,  places 
were  fixed  for  the  holding  of  markets  in  London ;  in  1306  the  use  of  sea  coal  in  the  city  was 
made  a  capital  offense  ;  in  1345  the  sale  of  poultry  in  lanes  and  hostels  was  forbidden ;  in 
1429  slaughter  houses  were  Hcensed. 

2  See  Munn  vs.  Illinois,  94  U.S.  113. 

'  See  opinion  in  IMunn  vs.  Illinois,  94  L'.S.  113  ;   De  Portibus  Maris,  i  Harg.  L.  Tr.  78. 

*AUnut  vs.  Inglis,  12  East  527. 

S94  U.S.  113. 


CORPORATIONS  297 

But  this  contention  is  hardly  borne  out  by  the  facts.  Perhaps  it  may 
more  truthfully  be  said  that  in  the  early  times  special  privileges  were 
deemed  to  have  been  practically  granted  to  all.  The  miller  was 
given  by  his  lord  the  right  to  contruct  his  mill  and  to  harness  the 
waterways.  And  the  innkeeper  no  doubt  was  given  the  privilege  to 
erect  his  inn.  Both  were  entitled  to  call  upon  their  lords  for  protection, 
and  it  was  the  failure  of  this  protection  from  the  landlords  which  gave 
to  Edward  I  and  his  sviccessors,  especially  the  Tudors,  the  opportunity 
to  intrench  themselves  in  power.  This  was  mainly  accomplished 
by  the  invention  of  the  standing  army  and,  in  return  for  the  loyalty 
and  support  of  the  lower  and  middle  classes  and  the  payment  by  them 
of  direct  dues  and  taxes  to  the  crown,  the  furnishing  of  a  military  pro- 
tection which  was  better  than  the  lords  could  ever  have  given  or  were 
in  the  habit  of  giving.  When  we  remember  how  wild  the  country  was, 
how  difficult  to  traverse,  how  infested  with  brigands  and  highway 
robbers,  we  Avill  realize  how  necessary  this  protection  was  to  all  trade 
and  to  all  intercourse,  and  especially  to  the  common  carrier.  Be- 
fore the  rise  of  the  royal  army,  indeed,  the  free-trading  cities  and  the 
trade  guilds  had  been  compelled  to  maintain  military  organizations 
of  their  own  and  were  to  a  large  extent  the  employers  of  the  free  lances 
and  mercenaries  who  swarmed  over  Europe.  It  is  also  true  that  at 
first  the  supervision  and  control  of  the  lower  and  serving  classes  was 
to  a  very  large  extent  in  the  hands  of  the  great  landlords  and  it  was 
they  who  came  in  direct  contact  with  the  masses  of  the  people.  But 
the  statute  of  quia  emptores  which  was  designed  as  much  to  center 
control  in  the  landlord  as  it  was  to  make  conveyances  of  real  property 
easy  and  possible,  carried  the  idea  much  further,  and  under  the  con- 
struction of  Edward  I  centered  all  control  in  the  King,  who  was  the 
source  of  all  privileges.^  The  theory  of  the  origin  of  these  rights  in 
the  state  itself,  and  of  a  responsibility  to  the  state  therefor,  was,  as  the 
democratic  ideal  grew,  henceforth  easy  and  natural.  Prior  to  the 
passage  of  the  statute  in  question  the  purchasers  "of  lands  and  tene- 
ments of  the  fees  of  great  men  and  other  lords"  were  able  to  enter 
"into  their  fees  to  the  prejudice  of  the  lords"  and  to  buy  "the  lands 
and  tenements  "  from  the  freeholders  of  such  great  men,  to  hold  of  their 
feoffers  and  not  of  the  chief  lords  of  the  fees ;  so  that  the  chief  lords 
"lost  their  escheats,  marriages,  and  wardships  of  such  lands  and  tene- 
ments, which  was  a  grievance  to  the  great  land  holders  of  the  king- 
dom," who  thought  themselves  "in  a  manner  disherited  by  such 
defalcations  in  their  seigniories."  -  For  these  reasons  the  statute  of 
quia  emptores  was  enacted  at  the  instance  of  the  great  land  holders. 
It  provided  that  in  the  future  it  should  be  lawful  for  every  freeman  to 
sell  at  his  pleasure  his  land  or  -tenements  or  part  thereof,  so  that  the 
feoffee  should  hold  the  land  or  tenement  of  the  chief  lord  by  the  same 

^  See  Reeve,  History  of  English  Law,  chap.  xi.  -  See  preamble  to  act. 


298  CORPORATIONS 

services  and  customs  by  which  the  feoffor  before  held  it.  By  this 
means  every  freeholder  instead  of  the  partial  permission  he  before 
had  under  Magna  Charta,  was  at  liberty  to  alien  all  his  lands,  provided 
he  made  a  reservation  of  the  services,  not  to  himself  but  to  the  chief 
lord.  This  was  intended  to  intrench  the  old  aristocracy  by  putting 
a  stop  to  the  practice  of  creating  new  seigniories,  and  it  was  intended 
no  doubt  that  every  tenancy  in  the  kingdom  should  thereafter  continue 
a  part  of  the  same  fee  or  manor  to  which  it  then  belonged  ;  for  if  no  new 
reservation  of  services  could  be  made,  no  new  manor  could  be  created.^ 
But  Edward  I  forced  the  statute  much  further  and  to  its  logical  con- 
clusion. He  maintained  that  the  statute  could  only  lead  to  the  vesting 
of  all  absolute  control  in  himself ;  that  he  was  the  superior  lord,  and 
that  under  the  feudal  system  all  holdings  were  held  from  him.  And 
it  was  in  return  for  an  acquiescence  in  this  position  by  the  great  land 
holders  that  the  privilege  of  primogeniture  was  first  granted,  and  the 
landed  nobility  protected  from  their  creditors  of  the  merchant  and 
middle  classes  of  whom  they  were  so  jealous  and  so  much  in  dread.- 
These  merchant  classes,  however,  were  all  the  recipients  of  royal 
charters  and  royal  favors ;  they  were  the  inhabitants  of  the  free  burghs 
and  the  members  of  the  trade  guilds.' 

There  is,  therefore,  nothing  illogical  or  inconsistent  in  our  modern 
theories  concerning  the  right  of  governmental  regulation.  We  have 
merely  applied  a  little  more  reason  in  the  matter,  and  based  the  right 
of  regulation  not  on  a  foundation  of  power  and  selfish  interest,  but 

*  See  Reeve,  History  of  English  Law,  chap.  xi. 

2  It  was  the  Statute  of  Merchants  enacted  by  Edward  I  himself  which  had  given  to  this 
class  its  powers.  Prior  to  this  time  its  members  had  no  means  by  which  to  enforce  their 
claims  and  the  lord  and  large  landed  proprietors  could  repudiate  their  debts  at  will.  Now 
the  courts  of  the  country  were  opened  to  the  merchant  and  the  royal  power  placed  behind 
the  mandates  of  these  courts  so  that  judgments  could  be  collected.  It  is  indeed  from  the 
time  of  the  passage  of  the  Statute  of  Merchants  that  we  begin  to  trace  the  real  rise  in  power 
of  the  English  middle  class  and  the  growth  of  English  middle  class  parhamentary  govern- 
ment. It  was  not  long  before  the  King  and  the  middle  classes  (who  had  the  money  and 
could  pay  the  ta.xes)  dominated  everything.  Henry  VII,  Henry  VIII,  and  Ehzabeth  ruled 
for  and  through  these  classes.  Charles  I  was  beheaded,  and  James  II  was  deposed  for 
not  catering  to  them,  and  ever  since  they  have  been  the  dominant  classes  in  the  Kingdom. 
The  aristocracy  have,  it  is  true,  officered  the  army  and  the  navy,  but  the  army  and  the 
navy  were  in  their  origin  and  present  day  use  royal  agencies  which  were  organized  for  the 
protection  of  trade  and  of  the  middle  classes  as  much  as  for  the  purpose  of  intrenching  in 
power  the  monarch  himself.  These  were  the  agencies  which  as  we  have  before  seen  took 
from  the  hands  of  the  old  landlord  the  duty  and  the  power  of  police  protection  and  vested 
it  in  the  state  itself. 

■*  The  right  to  trade  was  in  England  from  an  early  time  everywhere  hedged  around  with 
restrictions  and  was  frequently  the  subject  of  royal  charters.  Even  the  public  fairs,  where 
most  of  the  trading  was  originally  done,  were  generally  held  under  these  charters  or  grants, 
the  grantees  of  the  privileges  in  turn  being  empowered  to  license  and  to  control.  As  early 
as  the  reign  of  William  II  we  read  of  a  royal  charter  being  given  to  the  Bishop  of  Win- 
chester to  hold  a  fair  on  his  domains,  the  grant  being  coupled  with  the  duty  of  police  regu- 
lation and  control  and  the  right  to  charge  a  toll  on  all  goods  sold.  The  sale  of  goods 
anywhere  else  in  Winchester  was  for  the  time  at  least  forbidden.  In  the  reign  of  Edward 
VI  it  was  made  a  criminal  offense  to  buy  goods  which  were  on  their  way  to  a  market  or  to 
buy  corn  or  other  dead  victual  in  any  market  and  to  sell  it  again  in  any  other  market. 


CORPORATIONS  299 

on  one  of  general  necessity.  We  have  retained  in  America  enough  of 
the  mdividualism  of  the  frontier  and  of  our  Norse  and  Anglo-Saxon 
forefathers  to  base  all  right  of  regulation  on  this  ground  of  necessity 
and  of  basic  reasonableness,  and  though  conceding  the  full  power, 
where  the  necessity  exists,  to  deny  it  when  that  necessity  is  not  ap- 
parent. We  have,  however,  retained  enough  of  the  collectivism  of 
feudalism  to  recognize  the  needs  and  the  rights  of  the  community 
as  a  whole  and  of  the  state,  which  is  nothing  more  nor  less  than  the 
community. 

As  our  population  increases  and  the  struggle  for  existence  grows 
keener  and  keener,  the  necessity  for  governmental  regulation  will 
become  more  and  more  apparent  and  its  field  will  become  more  and 
more  expanded.  It  is  now  generally  conceded  that  not  merely  the 
health,  safety,  comfort  and  morality  of  the  public  are  matters  of 
governmental  solicitude,  but  its  convenience  and  welfare  generally,  and 
that,  though  the  right  to  liberty  and  property  cannot  be  interfered  with 
unreasonably  and  competition  is  the  desideratum  of  the  law,  where 
competition  is  suppressed,  either  naturally  or  artificially,  interference 
and  regulation  may  be  resorted  to.  WTiere,  indeed,  a  practical 
monopoly  is  created  or  exists  in  a  business,  that  business,  if  at  all 
necessary  to  the  public,  is  to  that  extent  deemed  to  be  affected  with  a 
pubhc  interest.  It  is  not  sufficient,  however,  to  justify  such  regula- 
tion to  show  merely  that  a  monopoly  exists.  It  must  actually  and 
necessarily  exist.  An  adequate  opportunity  to  contend  against  the 
monopoly  must  be  wanting.  If  a  sewage  or  water  company  has  the 
exclusive  use  of  the  streets  of  a  city  the  business  is  affected  with  a  public 
interest,  for,  in  the  nature  of  things,  one  must  gain  a  connection  with 
such  sewer  or  water  supply,  or  go  without.  One  grocery  store  in  a 
town  is  not,  however,  such  a  business,  as  others  may  easily  be  started.^ 
Neither  is  the  mere  fact  that  the  public  has  an  interest  in  the  business 
sufficient  in  itself ;  for  in  what  business  has  the  public  not  an  interest  ? 
The  doctor,  for  instance,  need  not  minister  to  all  who  require  his 
services,  and  yet  he  solicits  the  patronage  of  all  and  is  a  necessary  social 
factor.^  His  business  is  affected  with  a  public  interest  in  so  far  as  the 
puljlic  is  interested  in  his  competency  and  can  insist  upon  his  proper 
training  and  education,''  and  hold  him  liable  in  an  action  of  trespass  for 
his  negligence  as  for  a  breach  of  a  juiblic  duty.  Doctors,  however,  are 
at  present  so  numerous,  competition  so  strong,  and  the  tendency  to 
unionize,  if  existing,  comparatively  so  harmless,  that  the  right  to 
regulate  prices  could  hardly  be  insisted  upon.  Where  unions  exist, 
however,  whether  of  doctors,  of  lawyers,  of  merchants  or  of  labor- 
ing men,  and  are  generally  adhered  to,  and  the  j^rices  exacted  are 

'  Brewster  vs.  Miller,  loi  Ky.  275. 

2  Hurley  vs.  Ilucidingfield,  156  Ind.  416. 

»  Y.  B.  19  H.  VI,  49,  5  ;  Y.  B.  43  Ed.  Ill,  6  pi.  11 ;  Slater  vs.  Baker,  2  Wils.  359. 


300  CORPORATIONS 

extortionate,  or  the  union  is  of  such  a  strength  that  the  prices  may 
become  extortionate,  the  right  to  regulate  is  estabhshed.  The 
statutes  of  laborers  of  England  were  passed  under  such  conditions. 
The  labor  market  at  the  time  was  monopolized  and  regulation  was  the 
result.  At  the  time  of  the  revolution  selfish  and  unpatriotic  attempts 
on  the  part  of  many  to  make  an  exorbitant  profit  out  of  the  necessities 
of  the  troops  in  the  field  and  of  the  life  struggle  of  the  colonies,  led  to 
the  passage  of  statutes  in  New  York  and  Massachusetts  which  fixed 
the  scale  of  wages  for  farm  laborers,  mechanics  and  teamsters  and  the 
scale  of  prices  for  various  commodities.  These  statutes,  even  if 
passed  after  the  adoption  of  the  American  constitution,  would  no 
doubt  have  been  upheld,  as  the  businesses  were  essentially  affected 
with  a  public  interest,  and  by  creating  a  monopoly  and  controlling 
prices,  public  regulation  had  been  invited. 

We  are  to-day  extending  the  field  of  governmental  interference, 
and  businesses  and  occupations  which  were  formerly  unknown  or  of 
little  importance  are  now  being  regulated  and  their  charges  controlled. 
The  police  powers  of  a  state  must  necessarily  be  elastic  in  their  nature, 
and  be  as  extensive  as  the  wants  and  ideals  of  the  community ;  and 
businesses  and  occupations  which  were  formerly  of  little  importance 
may,  as  time  goes  on,  become  necessary  to  the  community.  When 
they  become  necessary  and  liable  to  become  monopolies,  the  right 
of  regulation  exists.  To  this  class  now  undoubtedly  belong  electric 
light  companies  operating  upon  the  public  streets,^  railroad  bridge 
companies,-  telephone  and  telegraph  companies,^  water  companies,'' 
sewerage  companies,^  irrigation  and  canal  companies.^  So,  too,  the 
rapid  development  and  importance  of  the  grain  elevator  or  warehouse 
business,  and  the  building  up  therewith  and  in  conformity  with  its 
requirements  and  conveniences  of  the  American  grain  raising  industries, 
have  induced  the  courts  of  recent  years  not  only  to  sustain  statutes 
which  regulate  the  charges  of  such  institutions,  but  which  place  them 
in  the  category  of  common  carriers,  compel  them  to  accept  the 
goods  of  all  who  may  apply  as  long  as  they  have  room,  and  even  to 
insure  the  grain  stored  with  them  at  their  own  expense.^     Not  merely 

1  Gould  vs.  Electric  Light  Company,  60  N.Y.  Supp.  ssg. 

2  Canada  Railway  vs.  International  Bridge  Company,  8  App.  Cas.  723. 
'  State  vs.  Telephone  Company,  17  Neb.  126. 

^  Haugen  vs.  .'Mbina  Water  Company,  21  Ore.  iii ;  City  of  Tampa  vs.  Waterworks  Com- 
pany, 34  South.  631. 

^  Mobile  vs.  Water  Supply  Company,  130  .-Ma.  379. 

*Wheeler  vs.  Irrigation  Company,  10  Col.  582. 

'  Munn  vs.  IlHnois,  94  U.S.  113  ;  People  vs.  Budd,  117  N.Y.  i ;  State  vs.  Brass,  2  N.D. 
482;  Brass  vs.  North  Dakota,  153  U.S.  391,  14  Sup.  Ct.  857. 

A  vigorous  protest  has  been  made  against  the  later  case  of  Brass  vs.  North  Dakota  which 
sustains  a  statute  when  directed  not  merely  against  terminal  elevators,  as  was  the  case 
in  Munn  vs.  Illinois,  but  against  the  ordinary  countr>-  elevator.  It  is  urged  that  in  the 
later  case  there  is  no  necessary  monopoly,  and  that  every  farmer,  or  combination  of  farmers, 
can  at  a  little  cost,  erect  its  own  elevator.     It  was  on  this  ground  that  Mr.  Justice  Miller 


CORPORATIONS  301 

have  the  courts  of  recent  years  justified  the  regulation  of  prices  and 
interference  with  private  industry  for  the  protection  of  the  public 
against  extortionate  rates,  but  the  regulation  in  a  large  measure  by 
law  of  the  rates  of  wages,  or,  at  any  rate,  of  the  method  by  which 
wages  shall  be  paid  in  order  to  preserve  tranquillity  in  particular  in- 
dustries.^ It  has  even  been  held  that  where  the  conduct  of  any 
business  tends  to  disturb  the  public  peace,  and  its  owners  are  con- 
stantly caUing  upon  the  pubUc  for  protection,  the  business  to  that 
extent  becomes  affected  with  a  public  interest.  This  was  the  case  in 
the  mines  of  Tennessee  and  Virginia.^  This  could  well  be  the  case  in 
the  anthracite  mines  of  Pennsylvania. 

These  latter  cases  are  of  great  importance  and  significance  and 
full  of  suggestion  for  the  future,  for  there  never  has  been  a  time  in 
the  history  of  the  country  when  the  business  world  has  been  so  closely 
articulated.  The  brealdng  of  one  Unk  in  the  chain,  indeed,  often 
completely  paralyzes  the  whole  system.  The  business  stagnation 
which  resulted  from  the  so-called  Debs  strike  and  that  which  resulted 
from  the  strike  in  the  anthracite  coal  fields  of  Pennsylvania  are  fresh 
in  our  memories  even  to-day.  The  strike  which  is  again  threatened 
in  those  fields,  and  the  sympathetic  or  secondary  strikes  which  are 
not  only  threatened  in  the  bituminous  fields  but  on  the  railroads  and 
in  the  other  branches  of  labor,  and  which  are  quite  certain  to  follow, 
bring  before  us  once  more  the  question  of  the  right  of  the  public  as  a 
whole  in  the  control  of  the  industries  which  flourish  under  its  protec- 
tion. Are  our  laws  and  is  our  constitution  such,  and  is  the  history  of 
our  legal  and  national  growth  of  such  a  nature,  that  we  as  a  people 
must  sit  idly  by  and  be  content  merely  to  keep  the  peace  or  to  see  that 
the  battle  is  fought  under  Marquis  of  Queensberry  rules  ?  To  what 
extent  does  American  individualism  extend  ?  Is  there  any  legal  foun- 
dation for  the  statement  so  often  made  by  the  business  man,  that  his 

and  Mr.  Justice  Bradley,  who  concurred  in  the  majority  opinion  in  the  leading  terminal 
elevator  case  of  Munn  vs.  Illinois,  dissented  from  the  opinion  in  Brass  vs.  North  Dakota, 
and  which  held  it  competent  to  regulate  the  charges  of  elevators  generall>'.  He  mamtained 
that  in  the  terminal  elevator  system  in  Chciago,  there  was  a  practical  monopoly,  as  such 
elevators  were  not  merely  terminal  elevators,  but  the  high  price  of  land  and  thedifEculty 
of  access  to  the  railroad  tracks  made  competition  almost  impossible.  These  considerations 
he  held  did  not  apply  to  the  country  elevators.  "If  this  be  a  monopoly,  justifying  public 
control  of  prices  for  service,"  said  Mr.  Justice  Brewer,  "I  am  at  a  loss  to  perceive  at  what 
point  the  fact  of  monopoly  will  cease  and  freedom  for  business  commence,  for  obviously 
elevators  along  that  line  of  road  were  as  plentiful  as  other  institutions  of  industry  and  as 
easily  and  cheaply  conducted,  and  therefore,  savoring  no  more  of  monopoly."  And  there 
seems  to  be  much  of  reason  in  this  dissent.  Modern  events  have,  however,  shown  the  ease 
with  which  such  businesses  can  be  monopolized,  the  real  lack  of  an  aggressive  competition, 
and  the  dependence  of  the  public  upon  the  elevator  industry.  Since  the  decision  in  the 
merger  cases  indeed  it  seems  to  have  been  settled  that  the  power  and  ability  to  monopolize 
is  the  criterion  and  not  the  actual  fact  of  monopolization. 

1  See  Peel  Splint  Coal  Co.  vs.  State,  36  W.Va.  802;  Harbison  vs.  Knoxville  Iron  Co., 
103  Tenn.  421  ;  Knoxville  Iron  Co.  vs.  Harbison,  183  U.S.  13,  22  Sup.  Ct.  i ;  Dayton  Coal 
Co.  vs.  Barton,  183  U.S.  23,  22  Sup.  Ct.  5. 

2  See  Knoxville  Iron  Co.  vs.  Harbison,  183  U.S.  13,  22  Sup.  Ct.  i. 


302  CORPORATIONS 

business  is  his  own  and  he  has  the  right  to  run  it  as  he  pleases?     Is 
the  right  of  the  laboring  man  to  strike  a  right  which  is  inalienable  ? 

Prior  to  the  year  1892  there  was  in  America  but  one  answer  to  these 
questions.  It  was  to  be  found  in  the  case  of  Godcharles  vs.  Wigeman^ 
and  in  a  long  line  of  decisions  which  followed  its  reasoning.^  In  it 
and  in  the  other  opinions  mentioned  the  right  of  legislative  bodies  to 
regulate  the  terms  of  employment  between  master  and  servant,  except 
in  cases  when  one  of  the  parties  was  a  minor  or  a  sailor  or  a  woman  who 
had  not  been  granted  the  privileges  of  the  married  woman's  acts, 
and  except  perhaps  in  the  cases  where  health  and  life  were  directly 
affected,  was  vigorously  denied,  and  statute  after  statute  which  sought 
to  so  regulate  was  set  aside  either  on  the  ground  of  class  legislation  or 
because  it  appeared  to  the  courts  to  be  unreasonable  and  a  denial  to 
the  persons  affected  (both  employers  and  employees)  of  liberty  and 
property  and  of  due  process  of  law.  "There  can  be  no  doubt,"  said 
the  supreme  court  of  Missouri  in  the  case  of  State  vs.  Loomis,^  "but 
the  legislature  may  regulate  the  business  of  mining  and  manufacturing 
so  as  to  protect  the  health  and  safety  of  the  employees,  but  that  is 
not  the  scope  of  the  two  sections  of  the  statute  now  in  question. 
They  single  out  those  persons  who  are  engaged  in  carrying  on  the 
pursuits  of  mining  and  manufacturing,  and  say  to  such  persons,  '  You 
cannot  contract  for  labor  payable  alone  in  goods,  wares  and  mer- 
chandise. The  farmer,  the  merchant,  the  builder,  and  the  numerous 
contractors,  employing  thousands  of  men,  may  make  such  contracts, 
but  you  cannot.'  They  say  to  mining  and  manufacturing  employees  : 
'Though  of  full  age,  and  competent  to  contract,  still  you  shall  not  have 
the  power  to  sell  your  labor  for  meat  and  clothing  alone,  as  others 
may.'  It  will  not  do  to  say  that  these  sections  simply  regulate  pay- 
ment of  wages,  for  that  is  not  their  purpose.  They  undertake  to  deny 
to  the  persons  engaged  in  the  two  designated  pursuits  the  right  to  make 
and  enforce  the  most  ordinary,  every-day  contracts  —  a  right  based 
upon  a  classification  which  is  purely  arbitrary,  because  the  ground  of 
the  classification  has  no  relation  whatever  to  the  natural  capacity  of 
persons  to  contract.  Now,  it  may  be  that  instances  of  oppression 
have  occurred  and  will  occur,  on  the  part  of  some  mine  owners  and 
manufacturers,  but  they  occur  quite  as  frequently  in  other  fields  of 
labor.  Conceding  that  such  instances  may  and  do  occur,  still  that 
furnishes  no  reasonable  basis  for  depriving  all  persons  engaged  in  the 
two  lawful  and  necessary  pursuits  of  the  right  to  make  and  enforce 

'  113  Pa.  St.  431,  6  Atl.  354,  decided  in  1886. 

2  State  vs.  Goodwill  (1889)  S3  W.Va.  170,  10  S.E.  285;  State  vs.  Fire  Creek  Coal  & 
Coke  Co.,  Si  W.  Va.  188,  10  -S.E.  288;  State  vs.  Loomis  (1893)  115  Mo.  307,  22  S.W.  350; 
Millett  vs.  People,  117  111.  294;  Frorer  vs.  People,  141  III.  171,  31  N.E.  39s;  Ramsey  vs. 
People,  142  111.  380;  Low  vs.  Rees  Printing  Co.,  41  Neb.  127,  59  N.W.  362;  Ritchie  vs. 
People,  155  111.  99,  40  N.E.  454;  In  re  House  Bill  No.  203,  21  Col.  27,  39  Pac.  431 ;  In  re 
Eight  Hour  Bill,  21  Col.  29,  39  Pac.  328;   In  re  Morgan,  26  Col.  415,  58  Pac.  1071. 

3  IIS  Mo.  307. 


CORPORATIONS 


303 


every-day  contracts.  Liberty,  as  we  have  seen,  includes  the  right 
to  contract  as  others  may,  and  to  take  that  right  away  from  a  class  of 
persons  following  lawful  pursuits  is  simply  depriving  such  persons  of  a 
time-honored  right  which  the  constitution  undertakes  to  secure  to 
every  citizen."  While  in  the  case  of  Godcharles  vs.  Wigeman^  the 
supreme  court  of  Pennsylvania  went  still  further  and  said  that  an 
act  of  the  kind  in  question  "is  an  infringement,  both  of  the  rights  of  the 
employer  and  the  employee.  It  is  an  insulting  attempt  to  put  the 
laborer  under  a  legislative  tutelage  which  is  not  only  degrading  to  his 
manhood,  but  subversive  of  his  rights  as  a  citizen  of  the  United  States. 
He  may  sell  his  labor  for  what  he  thinks  best,  whether  money  or 
goods,  just  as  his  employer  may  sell  his  iron  or  his  coal ;  and  any  and 
every  law  that  proposes  to  prevent  him  from  so  doing  is  an  infringe- 
ment of  his  constitutional  privileges  and  consequently  void."  ^  These 
cases  were  for  a  time  everywhere  followed.     It  was  not  until  1892 

•113  Pa.  St.  431,  6  Atl.  354- 

^  In  the  same  strain  the  Supreme  Court  of  West  Virginia,  in  the  earlier  case  of  State  vs. 
Goodwill,  :i^  W.V^a.  179,  which,  however,  is  now  practically  overruled  by  the  case  of  Peel 
Splint  Coal  Co.  vs.  State,  36  W.Va.  802,  said:  "It  is  a  species  of  sumptuarj'  legislation 
which  has  been  universally  condemned  as  an  attempt  to  degrade  the  intelligence,  virtue 
and  manhood  of  the  American  laborer  and  foist  upon  the  people  a  paternal  government  of 
the  most  objectionable  character,  because  it  assumes  that  the  employer  is  a  tyrant  and  the 
employee  is  an  imbecile."  While  the  Supreme  Court  of  Colorado,  in  the  case  of  In  re 
Morgan,  26  Col.  415,  58  Pac.  1071,  went  even  further  and  denied  the  right  of  legislative 
interference  altogether  in  the  matter  of  contract  between  employer  and  employee  even 
though  the  health  of  the  latter  was  directly  concerned.  "The  only  object  that  can  rationally 
be  claimed  for  the  act,"  the  court  said,  "is  the  preservation  of  the  health  of  those  working 
in  the  smelters.  Were  the  object  of  the  act  to  protect  the  public  health  and  its  provisions 
reasonably  appropriate  to  that  end,  it  might  be  sustained ;  for  in  such  a  case  even  the  con- 
stitutional right  of  contract  may  be  reasonably  limited.  But  the  act  before  us  is  not  of 
that  character.  In  selecting  a  subject  for  the  e.xercise  of  the  police  power,  the  legislature 
must  keep  within  its  true  scope.  The  reason  for  the  existence  of  the  power  rests  upon  the 
theory  that  one  must  so  use  his  own  as  not  to  injure  others,  and  so  as  not  to  interfere  with 
or  injure  others,  and  so  as  not  to  interfere  with  or  injure  the  public  health,  safety,  morals, 
or  general  welfare.  How  can  one  be  said  injuriously  to  affect  others,  or  interfere  with 
these  great  objects,  by  doing  an  act  which  confessedly  visits  its  consequences  on  himself 
alone?  And  how  can  an  alleged  law,  that  purports  to  be  the  result  of  an  exercise  of  the 
police  power,  be  such  in  reality,  when  it  has  for  its  only  object,  not  the  protection  of  the 
others,  or  the  public  health,  safety,  morals,  or  general  welfare,  but  the  welfare  of  him  whose 
act  is  prohibited,  when,  if  committed,  it  will  injure  him  who  commits  it,  and  him  only? 
The  maxim  does  not  read,  '  So  use  your  own  right  or  property  as  not  to  injure  yourself  or 
your  own  property.'  .  .  .  Our  bill  of  rights  expressly  says  that  government  is  instituted 
solely  for  the  good  of  the  whole." 

But  of  these  opinions  and  this  conception  of  public  morality,  the  Supreme  Court  of  the 
United  States  in  the  case  of  Holden  vs.  Hardy,  169  U.S.  366,  in  its  turii  said  :  "It  may  not 
be  improper  to  suggest  in  this  connection  that  although  the  prosecution  in  this  case  was 
against  the  employer  of  labor,  who  apparently  under  the  statute  is  the  only  one  liable,  his 
defense  is  not  so  much  that  his  right  to  contract  has  been  infringed  upon,  but  that  the  act 
works  a  peculiar  hardship  to  his  employees,  whose  right  to  labor  as  long  as  they  please  is 
alleged  to  be  thereby  violated.  The  argument  would  certainly  come  with  better  grace  and 
greater  cogency  from  the  latter  class.  But  the  fact  that  both  parties  are  of  full  age  and 
competent  to  contract  does  not  necessarily  deprive  the  State  of  the  power  to  interfere  where 
the  parties  do  not  stand  upon  an  equality,  or  where  the  public  health  demands  that  one 
party  to  the  contract  shall  be  protected  against  himself.  The  State  still  retains  an  interest 
in  his  welfare,  however  reckless  he  may  be.  The  whole  is  no  greater  than  the  sum  of  all 
the  parts,  and  when  the  individual  health,  safety  and  welfare  are  sacrificed  or  neglected, 
the  State  must  suffer." 


304  CORPORATIONS 

and  1899  respectively,  that  the  supreme  courts  of  West  Virginia '  and 
Tennessee-  made  a  complete  change  of  front  and  took  a  radically 
different  position,  and  not  until  1901  ^  that  the  supreme  court  of  the 
United  States  sustained  them  in  so  doing.  "The  whole  is  not  greater 
than  the  sum  of  all  its  parts,  and  when  the  individual  health,  safety 
and  welfare  are  sacrificed  or  neglected  the  state  must  suffer"  the  latter 
court  had  already  said  in  sustaining  a  statute  of  Utah  which  regulated 
the  hours  of  labor  in  underground  mines.'*  In  the  case  of  Knoxville 
Iron  Co.  vs.  Harbison^  it  went  still  further  and,  in  sustaining  the 
judgment  of  the  supreme  court  of  Tennessee  to  which  we  have  referred, 
quoted  wuth  approval  the  following  language  of  its  opinion:  "Con- 
fessedly, the  enactment  now  called  in  question  is  in  all  respects  a 
valid  statute  and  free  from  objection  as  such,  except  that  it  is  chal- 
lenged as  an  arbitrary  interference  with  the  right  of  contract,  on  account 
of  which  it  is  said  that  it  is  unconstitutional  and  not  the  law  of  the 
land  or  due  process  of  law.  The  act  does,  undoubtedly,  abridge  or 
qualify  the  right  of  contract,  in  that  it  requires  that  certain  obligations 
payable  in  the  first  instance  in  merchandise  shall  in  certain  contin- 
gencies be  paid  in  money ;  yet  it  is  as  certainly  general  in  its  terms, 
embracing  equally  every  employer  and  employee  who  is  or  may  be  in 
like  situation  and  circumstances,  and  it  is  enforceable  in  the  usual 
modes  established  in  the  administration  of  government  with  respect 
to  kindred  matters.  The  exact  and  precise  requirement  is  that  all 
employers,  whether  natural  or  artificial  persons,  paying  their  employees 
in  '  coupons,  script,  punchouts,  store  orders,  or  other  evidences  of  indebted- 
ness,'' shall  redeem  the  same  at  face  value  in  money,  if  demanded  by  the 
employee  or  a  bona  fide  holder  on  a  regular  pay  day  or  at  any  time  not  less 
than  thirty  days  from  issuance  and  that,  if  payment  be  not  so  made  upon 
such  demand,  the  owner  may  maintain  a  suit  on  such  evidence  of  indebted- 
ness, and  have  a  money  recovery  for  the  face  value  thereof,  in  any  court 
of  competent  jurisdiction.'  There  is  no  prohibition  against  the  issuance 
of  any  of  the  obligations  referred  to,  nor  against  payment  in  mer- 
chandise or  otherwise  according  to  their  terms,  but  only  a  provision 
that  they  shall  be  paid  in  money  at  the  election  and  upon  a  prescribed 
demand  of  the  owner.  In  other  words,  the  effect  of  the  act  is  to  con- 
vert into  cash  obligations  such  unpaid  merchandise  orders,  etc.,  as 
may  be  presented  for  money  payment  on  a  regular  pay  day  or  as  much 
as  thirty  days  after  issuance.  Under  the  act  the  present  defendant 
may  issue  weekly  orders  for  coal,  as  formerly,  and  may  pay  them  in 

1  Peel  Splint  Coal  Co.  vs.  State,  36  W.Va.  802,  15  S.E.  1000. 

2  Harbison  vs.  Knoxville  Iron  Co.,  103  Tenn.  421,  53  S.W.  955;  Dayton  Coal  &  Iron 
Co.  vs.  Barton,  103  Tenn.  604,  53  S.W.  970. 

^Knoxville  Iron  Co.  vs.  Harbison,  183  U.S.  13,  22  Sup.  Ct.  i;  Dayton  Coal  Co.  vs. 
Barton,  183  U.S.  23,  22  Sup.  Ct.  5. 

^Holden  vs.  Hardy,  169  U.S.  366,  18  Sup.  Ct.  383;  see  also  St.  Louis  I.  M.  &  S.  R. 
Co.  vs.  Paul,  173  U.S.  404,  19  Sup.  Ct.  419. 

'  22  Sup.  Ct.  I. 


CORPORATIONS  305 

that  commodity  when  desired  by  the  holder,  but  instead  of  being  able, 
as  formerly,  to  compel  the  holder  to  accept  payment  of  such  orders 
in  coal,  the  holder  may,  under  the  act,  compel  defendant  to  pay  them 
in  money.  In  this  way  and  to  this  extent  the  defendant's  right  of 
contract  is  affected.  Under  the  act,  as  formerly,  every  employee 
of  the  defendant  may  receive  the  whole  or  a  part  of  his  wages  in  coal 
orders,  and  may  collect  the  orders  in  coal,  or  transfer  theni  to  some  one 
else  for  other  merchandise  or  for  money.  His  condition  is  bettered 
by  the  act,  in  that  it  naturally  enables  him  to  get  a  better  price  for  his 
coal  orders  than  formerly,  and  thereby  gives  him  more  for  his  labor ; 
and  yet,  although  the  defendant  may  not  in  that  transaction  realize 
the  expected  profit  on  the  amount  of  coal  called  for  in  the  orders,  it 
in  no  event  pays  more  in  dollars  and  cents  for  the  labor  than  the  con- 
tract price.  The  scope  and  purpose  of  the  act  are  thus  indicated. 
The  legislature  evidently  deemed  the  laborer  at  some  disadvantage 
under  existing  laws  and  customs,  and  by  this  act  undertook  to  amelio- 
rate his  condition  in  some  measure  by  enabling  him  or  his  bona  fide 
transferee,  at  his  election  and  at  a  proper  time,  to  demand  and  receive 
his  unpaid  wages  in  money  rather  than  in  something  less  valuable. 
Its  tendency,  though  slight  it  may  be,  is  to  place  the  employer  and 
employee  upon  equal  ground  in  the  matter  of  wages,  and,  so  far  as 
calculated  to  accomplish  that  end,  it  deserves  commendation.  Being 
general  in  its  operation  and  enforceable  by  ordinary  suit,  and  being 
unimpeached  and  unimpeachable  upon  other  constitutional  grounds, 
the  act  is  entitled  to  full  recognition  as  the  Maw  of  the  land'  and  'due 
process  of  law'  as  to  the  matters  embraced,  without  reference  to  the 
state's  police  power,  as  was  he]d  of  an  act  imposing  far  greater  re- 
strictions upon  the  right  of  contract,  in  the  case  of  Dugger  vs. 
Mechanics'  &  T.  Ins.  Co.,  95  Tenn.  245,  28  L.  R.  A.  796,  32  S.  W.  5,  and 
as  had  been  previously  decided  in  respect  of  other  limiting  statutes 
therein  mentioned.  95  Tenn.  253,  254,  28  L.  R.  A.  799,  32  S.  W.  6,  7. 
Furthermore,  the  passage  of  this  act  was  a  legitimate  exercise  of  police 
power,  and  upon  that  ground  also  the  legislation  is  well  sustained. 
The  first  right  of  a  state,  as  of  a  man,  is  self-protection,  and  with  the 
state  that  right  involves  the  universally  acknowledged  power  and 
duty  to  enact  and  enforce  all  such  laws,  not  in  plain  confiict  with  some 
provision  of  the  state  or  federal  constitution,  as  may  rightly  be  deemed 
necessary  or  expedient  for  the  safety,  health,  morals,  comfort,  and 
welfare  of  its  people.  The  act  before  us  is,  perhaps  less  stringent 
than  any  one  considered  in  any  of  the  cases  mentioned.  It  is  neither 
prohibitory  nor  penal ;  not  special,  but  general ;  tending  towards 
equality  between  employer  and  employee  in  the  matter  of  wages; 
intended  and  well  calculated  to  promote  peace  and  good  order,  and  to 
prevent  strife,  violence,  luid  bloodshed.  Such  being  the  character,  pur- 
pose, and  tendency  of  the  act,  we  ha\e  no  hesitation  in  holding  that 


3o6  CORPORATIONS 

it  is  valid,  both  as  general  legislation,  without  reference  to  the  state's 
reserved  police  power,  and  also  as  a  wholesome  regulation  adopted  in 
the  proper  exercise  of  that  power." 

Perhaps,  however,  the  real  reasons  for  these  decisions  and  the 
reasons  which  will  appeal  with  the  greatest  force  to  the  public  as  a 
whole  are  those  which  are  contained  in  the  opinion  of  the  court  in 
the  case  of  Peel  Splint  Co.  vs.  State, ^  which  was  decided  about 
the  same  time  and  in  which  the  supreme  court  of  West  Virginia 
said: 

We  base  the  decision  in  this  case.  First,  upon  the  ground  that  the  de- 
fendant is  a  corporation  in  the  enjoyment  of  unusual  and  extraordinary 
privileges  which  enables  it  and  other  similar  associations  to  surround  them- 
selves with  a  vast  retinue  of  laborers,  who  need  to  be  protected  against  the 
fraudulent  or  suspicious  devices  in  the  weighing  of  coal  or  payment  of  wages 
for  labor ;  Secondly,  the  defendant  is  a  licensee,  pursuing  a  vocation  which 
the  state  has  taken  under  its  general  supervision  for  the  purpose  of  securing 
the  safety  of  employees,  by  ventilation,  inspection  and  government  report, 
and  the  defendant,  therefore,  must  submit  to  such  regulations  as  the  sov- 
ereign thinks  conducive  to  public  health,  public  morals  and  public  security. 
We  do  not  base  this  decision  so  much  upon  the  ground  that  the  business  is 
affected  by  the  public  use,  but  upon  still  higher  ground,  that  the  public 
tranquillity,  the  good  and  safety  of  society,  demand,  where  Ihe  number  of 
employees  is  such  that  specific  contracts  with  such  laborers  would  be  im- 
probable, if  not  impossible,  that  in  general  contracts  justice  shall  prevail 
as  between  operator  and  miner  ;  and,  in  a  company's  dealings  with  a  multi- 
tude of  miners  with  which  the  state  has  by  special  legislation  enabled  the 
owners  and  operators  to  surround  themselves,  that  all  opportunities  for 
fraud  shall  be  removed.  The  state  is  frequently  called  upon  to  suppress 
strikes;  to  discountenance  labor  conspiracies ;  to  denounce  boycotting  as 
injurious  to  trade  and  commerce ;  and  it  cannot  be  possible  that  the 
same  police  power  may  not  be  invoked  to  protect  the  laborer  from  being 
made  the  victim  of  the  compulsory  power  of  that  artificial  combination  of  capital 
which  special  state  legislation  has  originated  and  rendered  possible.  It  is  a 
fact  worthy  of  consideration  and  one  of  such  historical  notoriety  that  the 
court  may  recognize  it  judicially,  that  every  disturbance  of  the  peace  of 
any  magnitude  in  this  state  since  the  civil  war  has  been  evolved  from 
the  disturbed  relations  between  powerful  corporations  and  their  servants 
and  employees.  It  cannot  be  possible  that  the  state  has  no  police  power 
adequate  to  the  protection  of  society  against  the  re-occurrence  of  these  disturb- 
ances, which  threaten  to  shake  civil  order  to  its  very  foundations.  Collisions 
between  the  capitalist  and  the  working  man  endanger  the  safety  of  the 
state,  stay  the  wheels  of  commerce,  discourage  manufacturing  enterprise, 
destroy  public  confidence  and  at  times  throw  an  idle  population  upon  the 
bosom  of  the  community.'' 

1  36  W.Va.  802. 

2  The  reasoning  of  this  case  was  affirmed  and  its  language  quoted  with  approval  by  the 
Supreme  Court  of  the  United  States  in  the  case  of  Knox^'ille  Iron  Co.  vs.  Harbison,  183  U.S. 
13,  22  Sup.  Ct.  I. 


CORPORATIONS  307 

The  significance  of  these  cases,  and  of  the  judicial  change  of  front 
and  public  policy  in  them  expressed  is  very  great.  In  them  is  an 
assertion  of  the  rights  of  the  independent  public  which  in  labor  dis- 
putes have  heretofore  been  too  often  ignored.  They,  it  will  be  seen, 
would  justify  the  state  of  Pennsylvania  and  the  sister  states  in  which 
sympathetic  strikes  are  being  inaugurated,  in  settling  the  controversies 
by  legislative  action.  In  other  words,  when  the  contestants  are  not 
able  to  settle  their  controversies  between  themselves,  and  the  public 
peace  and  welfare  are  being  jeopardized,  in  stepping  in  and  prescribing 
the  rules  and  regulations  uncler  which  the  industries  shall  be  conducted. 
They  sanction  not,  it  is  true,  a  compulsory  arbitration,  but  the  pre- 
scribing by  the  state  legislatures  the  rules  which  shall  control  in  the 
conduct  of  the  businesses.  The  matters  which  were  in  dispute  in  the 
coal  fields  of  West  Virginia  and  Tennessee  were,  to  all  intents  and  pur- 
poses, the  same  matters  as  those  which  were  in  dispute  in  the  recent 
coal  strike  in  Pennsylvania,  and  in  the  strike  which  is  now  threatened. 
They  were  disputes  over  the  method  of  weighing  coal,  the  method  of 
paying  wages  and  the  paying  of  such  wages  in  orders  on  the  com- 
pany's stores  or  truck-shops.  In  the  opinions  the  courts  take  the 
broad  position  that  every  business  man  and  every  man  who  seeks  the 
protection  of  society  in  order  that  he  may  five  and  do  business,  and  who 
calls  upon  that  society  for  protection  from  physical  harm  and  upon  its 
courts  for  the  enforcement  of  his  contracts,  must  be  willing  to  yield 
to  that  society  some  measure  of  regulation  and  control  when  that 
control  is  necessary  for  the  preservation  of  the  public  peace  and  the 
public  welfare.  This  is  socialism  no  doubt  —  or  looks  like  it,  but  "it 
is  the  way  they  have  in  West  Virginia  and  Tennessee"  and  in  the 
supreme  court  of  the  United  States  itself.  It  was  Professor  Dicey, 
was  it  not,  who  recently  said :  "  We  all  of  us  in  England  still  fancy  at 
least  that  we  believe  in  the  blessing  of  freedom,  yet,  to  quote  an  ex- 
pression which  has  become  proverbial,  'To-day  we  are  all  of  us  so- 
cialists.'" 1 

1  "The  Combination  Laws  as  Illustrating  the  Relations  Between  Law  and  Opinion  in 
England  during  the  Nineteenth  Century,"  17  Harv.  L.  Rev.  552. 


V 

COMMISSIONS   AND   BOARDS 

COMMISSION   REGULATION   OF   PUBLIC   UTILITIES: 
A  SURVEY  OF  LEGISLATION 

By  I.  Leo  Shartman  of  the  University  of  Michigan 

(From  the  Annals  of  the  American  Academy  of  Political  and  Social  Science, 

May,  1 9 14) 

The  machinery  devised  for  governmental  regulation  is  most  frequently 
a  commission  or  board.  The  more  important  commissions  are  appointed, 
usually,  after  investigations  which  are  conducted  either  by  members  of  the 
legislature  or  Congress,  or  by  special  investigating  commissions,  or  by  ofi&cers 
of  the  government  under  special  instructions.  —  Editor's  Note. 

I.  The  Scope  of  Utility  Legislation 

In  the  early  days  of  the  development  of  public  utility  properties 
there  was  little  or  no  regulation  for  the  safeguarding  of  public  welfare. 
In  order  to  afford  effective  stimulus  for  inventive  genius  and  business 
initiative  it  was  necessary  to  provide  a  free  field  for  private  enterprise, 
unhampered  by  legislative  restriction.  The  technique  of  utility 
operation,  in  which  so  high  a  degree  of  efficiency  has  now  been  attained, 
had  yet  to  be  worked  out ;  and  the  permanent  necessity  and  financial 
practicability  of  the  utility  services,  which  have  now  been  recognized 
beyond  recall,  had  yet  to  be  established.  In  these  monopolistic  in- 
dustries, as  in  private  business,  public  welfare  counseled  a  policy  of 
laissez-faire.  In  spite  of  their  monopolistic  character,  it  was  felt 
that  the  public  service  industries,  in  order  to  be  ready  for  public 
control  no  less  than  for  public  ownership,  must  first  have  reached  a 
stage  of  maturity  consistent  with  the  lessened  opportunities  for  private 
gain  necessarily  involved  in  a  system  of  effective  public  regulation. 
During  the  first  half  of  the  nineteenth  century,  therefore,  franchise 
privileges  were  freely  granted  by  the  state  legislatures.  These  fran- 
chises extended  for  long  periods  and  often  in  perpetuity.  As  a  result, 
the  privileges  essential  for  supplying  the  future,  as  well  as  the  then- 

30S 


COMMISSIONS   AND   BOARDS  309 

existing,  needs  of  the  city  were  given  to  private  coporations  with 
little  thought  of  immediate  restriction  or  of  reservation  of  power  for 
future  regulation.  The  public  service  franchise  was  looked  upon  as  a 
private  contract  between  the  state  and  the  grantee  corporation,  in- 
stead of  as  a  permit  by  the  sovereign  for  the  performance  by 
private  individuals  or  corporations  of  functions  largely  public  in  their 
nature. 

The  regulation  of  public  utilities  may  be  said  to  have  passed  through 
three  stages,  not  always  entirely  distmct,  from  which  emerge  three 
different  methods  of  public  control.  First,  there  was  regulation 
through  the  provisions  of  the  franchise.  During  the  second  part  of 
the  nineteenth  century  greater  care  began  to  be  exercised  in  the  draw- 
ing up  and  the  granting  of  franchises.  Exclusive  grants  were  often 
prohibited  by  constitutional  provision  and  statutory  enactment. 
The  unconditional  long-term  grant  began  to  give  way  to  the  short-  term 
franchise  with  restrictive  provisions.  Instead  of  grants  in  perpetuity 
or  for  ninety-nine,  or  even  fifty,  years,  the  life  of  the  franchise  came 
more  generally  to  be  twenty-five  to  forty  years.  Moreover,  the 
grantee  was  subjected  to  restrictions  incorporated  in  the  franchise. 
Maximum  rates  were  often  prescribed,  particularly  in  the  case  of 
street  railway  service,  above  which  the  grantee  corporations  could  not 
go  in  fixing  their  rates  and  fares.  There  was  often  some  provision, 
too,  as  to  the  character  of  the  service  to  which  the  public  would  be 
entitled  under  the  terms  of  the  franchise.  This  form  of  regulation 
had  two  fundamental  drawbacks :  in  view  of  the  rapid  growth  of 
American  cities,  the  restrictions  contained  in  the  grant  did  not  provide 
adequate  regulation  even  for  the  short  period  of  twenty  to  thirty 
years ;  and  there  was  no  administrative  machinery  for  the  execution, 
on  behalf  of  the  public,  of  the  limited  restrictions  of  the  franchise 
contract. 

The  second  form  in  which  the  movement  for  adec^uate  regulation 
manifested  itself  was  the  reservation  to  the  state  of  the  general  power 
of  control.  This  reserved  power  of  regulation,  which  was  gradually 
extended  by  the  courts  as  a  power  inherent  in  the  state  even  in  the 
absence  of  express  reservation,  was  exercised  by  state  legislatures 
through  the  enactment  of  statutes  and  by  city  councils  through  the 
promulgation  of  municipal  ordinances.  While  this  method  gave  a 
fuller  recognition  to  the  permanence  of  the  problems  raised  by  the 
unregulated  operation  of  the  public  service  industries  and  afforded  a 
means  for  regular  instead  of  periodic  adjustment  of  the  relations  be- 
tween the  public  and  the  public  service  corporations,  the  lack  of  expert 
knowledge  on  the  part  of  legislators  and  councilmen  together  with 
the  great  diversity  of  their  interests,  and  the  absence  of  administrative 
machinery  for  carrying  into  effect  the  public  policy  embodied  in  the 
legislation  aiming  to  regulate  public  utilities,  resulted  in  a  control 


3IO  COMMISSIONS  AND   BOARDS 

which  was  ine\'itably  spasmodic  and  at  best  inadequate.  This  was 
the  general  situation  at  the  end  of  the  nineteenth  century.^ 

Regulation  by  the  states  through  administrative  commissions 
of  the  t^^pe  that  prevails  to-day  is  very  recent.  The  Railroad  Com- 
mission of  Wisconsin  was  not  established  until  1905  and  it  was  not 
given  jurisdiction  over  utilities  other  than  railroads,  express  com- 
panies and  telegraph  companies  till  1907.  The  public  service  com- 
missions of  New  York  were  not  established  till  1907.  The  Wisconsin 
and  New  York  commissions  have  served,  to  a  large  degree,  as  models 
for  the  numerous  administrative  bodies  for  the  regulation  of  public 
utilities  that  have  sprung  into  being  since  1907 ;  and  the  Wisconsin 
and  New  York  laws  have  been  the  basis  of  a  large  mass  of  the  public 
utility  legislation  recently  enacted.  These  laws  substitute  adminis- 
trative regulation  for  direct  legislative  control.  Large  powers  are 
intrusted  to  special  boards  or  commissions  whereby  they  are  enabled 
to  keep  themselves  constantly  and  thoroughly  informed  of  the  prac- 
tical operation  as  well  as  of  the  general  policy  of  public  service  cor- 
porations, on  the  basis  of  which  knowledge  and  information  they 
exercise  such  superWsion  over  these  utilities  as  may  tend  to  har- 
monize the  private  interests  of  the  owners  and  the  general  w^elfare  of 
the  public.  With  but  few  exceptions,  present-day  utility  regulation 
is  legislative  in  character  only  in  the  sense  that  the  extent  of  com- 
mission jurisdiction  and  power  is  determined  by  statutory  enact- 
ment. 

Now  a  complete  resume  of  utility  legislation  would  include,  in 
addition  to  the  so-called  commission  laws,  all  special  franchises  and 
charters,  with  such  restrictions  as  they  contain,  and  all  direct  legisla- 
tion imposing  duties  upon  utilities  for  the  enforcement  of  which  no 
provision  is  made.  A  comprehensive  survey  of  commission  legislation 
even  would  include  many  laws  whereby  duties  are  imposed  upon 
utilities  by  direct  legislative  enactment  ^^•ith  power  of  enforcement 
vested  in  commissions.  This  paper  deals  almost  exclusively  with 
commission  laws.  Emphasis  is  here  placed  upon  the  organization 
and  powers  of  commissions  rather  than  upon  the  duties  of  utilities. 
Moreover,  the  discussion  is  limited  to  state  commissions.  Since  the 
authority  of  the  Interstate  Commerce  Commission  extends  primarily, 
if  not  entirely,  to  interstate  business,  it  is  given  no  consideration  here, 
in  spite  of  its  large  influence  upon  state  commission  legislation.  Mu- 
nicipal commissions  are  likewise  beyond  the  scope  of  this  paper. 
Although  there  has  been  considerable  American  experience  ■uith  munici- 
pal commissions,  usually  deri\dng  their  direct  authority  from  munici- 
palities and  exercising  jurisdiction  over  utilities  whose  business  is 

1  There  were,  of  course,  notable  exceptions  to  this  situation.  In  Massachusetts,  for 
example,  the  board  of  gas  and  electric  light  commissioners,  established  in  1885,  was  super- 
vising gas  and  electric  companies  with  marked  success. 


COMMISSIONS  AND   BOARDS  311 

confined  within  these  municipalities,  the  general  trend  of  commis- 
sion regulation  is  towards  the  establishment  of  central  commissions 
whose  authority  is  state-wide.^ 

II.  The  Organization  of  Commissions 

The  success  of  commission  regulation  will  depend  largely  upon  the 
personnel  of  the  commissions.  Ultimately,  the  personnel  of  public 
service  commissions  will  be  determined  by  the  attitude  of  the  public 
towards  its  officials  in  general,  and  by  the  confidence  or  distrust 
which  the  public  manifests  towards  the  employment  in  the  public 
ser\dce  of  trained  experts  and  men  of  large  business  experience.  This 
is  one  of  the  fundamental  problems  of  American  democracy,  and  it 
cannot  be  solved  by  mere  legislation.  But  the  eft'ectiveness  of  com- 
mission regulation  depends  in  large  measure  also  upon  political  ma- 
chinery ;  and  this  leads  to  a  consideration  of  the  important  legislative 
requirements  dealing  ^^dth  commission  organization  and  procedure. 

There  are  at  the  present  time  forty-eight  state  commissions,  with 
independent  personnel,  representing  forty-five  separate  jurisdictions."' 

'  The  New  York  Public  Sen-ice  Commission  for  the  first  district  is  a  state  commission 
with  limited  territorial  jurisdiction  because  of  the  special  problems  created  by  the  dominat- 
ing position  of  New  York  City. 

-  The  following  is  a  complete  list  of  state  railroad  and  public  ser\-ice  commissions.  Be- 
cause of  limited  space  no  attempt  is  made  to  present  a  complete  list  of  constitutional  and 
statutory  sources.  All  of  the  more  important  commission  laws  are  given,  and  reference  is 
made  to  such  other  pro\'isions  as  deal  with  the  creation  and  organization,  of  commissions. 

Alabama:  Railroad  Commission  of  Alabama  (Code  igo~.  Sects.  5632,  5633,  5636,  5637, 
5640,5642).  Arizona:  Corporation  Commission  (5«iw«Z,(iK'y  jp/2,  chap.  xc).  Arkansas: 
Railroad  Commission  of  .Arkansas  (Kirby's  Digest  IQ04,  Sects.  678S,  6780,  6703).  Cali- 
fornia :  Railroad  Commission  of  the  State  of  California  (Statutes  igii,  ist  extra  session, 
chaps,  .xiv,  xl).  Colorado:  State  Railroad  Commission  of  Colorado  (Laws  igio,  special 
session,  chap.  v).  Connecticut:  Public  Utilities  Commission  (Public  Acts  igii,  chap. 
cxx^•iii).  Florida:  Railroad  Commissioners  of  the  State  of  Florida  (Gen.  Stats.  igo6.  Sects. 
2S82,  2883,  2887  [as  amended  1907]).  Georgia:  Railroad  Commission  of  Georgia  (Cod^ 
igii.  Sects.  2616,  2620,  2621,  2622,  2625.  Acts  iSyS-jg,  no.  269,  Sect.  i).  Idaho: 
Public  Utilities  Commission  of  the  State  of  Idaho  (Session  Laws  1013,  house  bUl  no.  21). 
Illinois:  State  Public  Utilities  Commission  (Acts  igij,  house  bill  no.  907).  Indiana: 
Public  Ser\-ice  Commission  of  Indiana  (.-lets  igij,  house  bill  no.  361).  Iowa:  Board  of 
Railroad  Commissioners  (Code  iSg/,  Sects.  2111,  2121).  Kansas:  Public  Utilities  Commis- 
sion (Gcw.  5/(7/5. /oop.  Sect.  7 1S5.  i,au'5  7077,  chap.  cc.xxx\'iii).  Kentucky:  Railroad  Com- 
mission (Constitution,  Section  2og.  Carroll's  Statutes  igog.  Sects.  821—823).  Louisiana: 
Railroad  Commission  of  Louisiana  (Constitution,  Articles  283,  287,  2S9).  Maine:  Board 
of  Railroad  Commissioners  (Rev.  Stats.  1003.  chap,  li.  Sect.  48  [as  amended  by  public  laws 
1Q09,  chap,  cxli] ;  chap,  cxvi.  Sect.  i).  Marsdand  :  Public  Senice  Commission  (Laws  igio, 
chap,  clxxx;  Laws  igi2,  chap.  dLxiii).  Massachusetts:  Board  of  Gas  and  Electric  Light 
Commissioners  (Rev.  Laws  igo3,  chap,  axxi.  Sect,  i  [as  amended  by  acts  1907,  chap,  cccxvi]. 
.Acts  iQio,  chap.  dxxxLx,  Sect,  i) ;  Public  Service  Commission  (.Acts  707  ?,  chap.  dccLxxxiv). 
Michigan:  Michigan  Railroad  Commission  (Public  Acts  igog,  no.  300).  Minnesota: 
Railroad  and  Warehouse  Commission  (Rev.  Laws  7005,  Sects.  1953  and  1956  [as  amended 
by  laws  1911,  chap,  cxl,  1961]).  Mississippi:  Mississippi  Railroad  Commission  (Code  igo6. 
Sects.  4826,  4S28,  4830).  Missouri:  Public  Service  Commission  (Public  ser\-ice  commission 
law  of  ^larch  17,  1913).  ^Montana  :  Public  Service  Commission  (Public  service  commission 
law  of  1913).  Nebraska  :  Nebraska  State  Railway  Commission  (Cobbey's  Annotated  Statutes 
igog.  Sects.  10649,  10650).  Nevada:  Railroad  Commission  of  Nevada  (Statutes  igoy,  chap, 
xliv  [as  amended  bj'  statutes  191 1,  chap,  cxciii]) ;    Public  Sers-ice  Commission  of  Nevada 


312 


COMMISSIONS   AND   BOARDS 


Delaware,  Utah  and  Wyoming  are  the  only  states  which  have  no 
central  commissions.  New  York,  Massachusetts  and  South  Carolina 
each  has  two  distinct  commissions. 

Twenty- seven  of  the  forty-eight  commissions  are  appointed  by 
the  governor  by  and  with  the  consent  or  advice  of  the  senate  or  council ; 
one  is  appointed  by  a  railroad  board,  or  a  majority  of  its  members, 
consisting  of  the  governor,  the  lieutenant  governor,  and  the  attorney- 
general  ;  twenty  are  elected  by  the  people.  It  is  generally  recognized 
that  the  appointive  commission,  all  else  being  equal,  is  likely  to  call 
into  the  public  service  better  and  abler  men  than  the  elective  commis- 
sion. And  there  is  a  strong  tendency  towards  the  appointive  commis- 
sion. Not  only  is  a  clear  majority  of  the  commissions  appointive, 
but  all  the  states  which  legislated  during  the  past  year  created  ap- 
pointive commissions.^ 

The  number  of  commissioners  varies  from  three  to  seven.  Thirty- 
eight  commissions  have  three  members ;  one  has  four ;  eight  have  five ; 
one  has  seven.  The  term  of  ofhce  varies  from  two  years  in  Arkansas 
and  North  Dakota  to  ten  years  in  Pennsylvania.  In  live  jurisdictions 
the  tenure  is  three  years ;  in  six,  four ;  in  three,  five ;  in  thirty,  six ; 
in  one,  eight  years.  It  is  evident  that  the  commissioners  are  generally 
being  given  a  long  enough  tenure  to  make  them  expert  in  their  work 
even  if  they  are  not  so  when  they  take  office. 

{Statutes  igii,  chap.  cLxii).  The  personnel  of  the  two  commissions  is  the  same,  the  railroad 
commission  being  ex  officio  the  public  service  commission.  New  Hampshire :  Public  Service 
Commission  {Laws  igii,  chap,  clxiv).  New  Jersey  :  Board  of  Public  Utihtj'  Commissioners 
{Laws  iQii,  chap.  cxcv).  New  Mexico:  State  Corporation  Commission  (Constitution, 
Article  XI,  Section  i.  Laws  IQ12,  chap.  lxx\'iii).  New  York:  Public  Service  Commission, 
First  District  {Laws  igio,  chap,  ccccixxx  as  amended  through  1913!) ;  Public  Service  Com- 
mission, Second  District  (same  citation  as  for  first  district  commission).  North  Carolina: 
Corporation  Commission  {Pell's  Revisal  igoS,  Sects.  1054-1056,  1060,  2754).  North 
Dakota :  Board  of  Railroad  Commissioners  of  the  State  of  North  Dakota  (Constitution, 
Section  .82.  Rev.  Codes  igoy,  Sect.  364,  366,367.  Laws  igog,  chap,  ccxvi.  Sect.  4).  Ohio: 
Public  Utilities  Commission  of  Ohio  {Laws  igii,  no.  325.  Laws  igij,  house  bill  no.  582). 
Oklahoma:  Corporation  Commission  (Constitution,  Article  IX,  Sections  15,  16,  18  (a). 
Constitution,  schedule  Section  15).  Oregon:  Railroad  Commission  of  Oregon  {Gen.  Laws 
1007,  chap.  liii.  Gen.  Laws  igii,  chap,  cclxxix).  Pennsylvania:  Public  Service  Commis- 
sion of  the  Commonwealth  of  Permsylvania  {Laws  igij,  no.  854).  Rhode  Island:  Public 
Utilities  Commission  {Acts  igi2,  chap,  dccxcv).  South  Carolina:  Railroad  Commission 
(Constitution,  Article  IX,  Section  14.  Gen.  Stats.  190.3,  Sects.  2063,  2064.  Laws  iSgj,  no. 
304,  Sect.  I.  Laws  igio,  no.  286).  South  Dakota:  Board  of  Railroad  Commissioners  of 
the  State  of  South  Dakota  {Rev.  Pol.  Code  1Q03,  Sects.  186,  187,  i8g-igi,  ig4,  195  [as 
amended  by  session  laws  1907,  chap,  ccviii]).  Tennessee  :  Railroad  Commission  of  the  State 
of  Tennessee  {Acts  iSgy,  chap.  x.  Acts  igoy,  chap,  cccxc).  Texas:  Railroad  Commission 
of  Texas  (Constitution,  Article  XVI,  Section  30.  Saylcs'  Civil  Statutes  iSg/,  Art.  4561). 
Vermont:  Public  Service  Commission  (Pjt6//c  5/aY)</c^  /po(5.  Sects.  4591,  4592,  6172.  Laws 
igoS,  no.  116).  Virginia:  State  Corporation  Commission  (Constitution,  Section  155).  Wash- 
ington :  Public  Service  Commission  of  Washington  {Laws  ion,  chap,  cxvii).  West  Virginia  : 
Public  Service  Commission  (public  service  commission  law  of  February  20,  1913).  Wis- 
consin :  Railroad  Commission  of  Wisconsin  {Laws  igos,  chap,  ccclxii  as  amended.  Laws 
igoy,  chaps,  ccccxcix  as  amended,  cccciiv,  dlxxviii.  Laws  igii,  chap,  dxciii.  Laws  igis, 
chap,  dcclvi). 

1  Idaho,  Illinois,  Indiana,  Massachusetts,  Missouri,  Montana,  Ohio,  Pennsylvania,  West 
Virginia. 


COMMISSIONS   AND   BOARDS  313 

The  compensation  of  commissioners  varies  from  $1500  in  South 
Dakota  to  $15,000  in  New  York.  In  one  commission  the  salary  is 
$1500  per  annum;  in  one,  $1700;  in  one,  $1900;^  in  four,  $2000; 
in  one,  $2200;  in  three,  $2500;  in  nine,  $3000;  in  one,  $3500; 
in  nine,  $4000 ;  in  two,  $4500 ;  in  four,  $5000 ;  in  one,  §5500 ;  in 
four,  $6000;  in  one,  $7500;  inone,  SSooo;  in  two,  Sio,ooo  ;  and  in 
two,  S 1 5,00c.  It  will  be  noted  that  in  fifteen  commissions  the  salaries 
are  S5000  or  over  and  in  thirty-three  they  are  less  than  S5000.  In 
nine  commissions  they  are  less  than  $2500.  In  the  recent  legislation 
the  tendency  is  to  provide  a  reasonably  adequate  salary  for  the  commis- 
sioners. Illinois  and  Pennsylvania,  for  example,  in  their  new  laws, 
provide  a  salary  of  $10,000  for  each  of  the  commissioners ;  Massachu- 
setts, $8000 ;  Ohio,  Indiana  and  West  Virginia,  $6000 ;  Missouri, 
$5500;   and  Idaho,  $4000. 

In  addition  to  the  commissioners,  pro\ision  is  often  made  in  the 
statutes  for  a  secretary  or  clerk  and  for  a  special  attorney  to  the  com- 
mission. Such  pro\'ision  for  a  secretary  or  clerk  is  found  in  thirty-five 
jurisdictions,  and  for  a  special  attorney  in  twenty-two  jurisdictions. 
In  some  states  the  attorney- general  is  directed  to  act  on  behalf  of 
the  commission  and  to  appoint  such  other  counsel  as  may  be  necessary. 
In  thirty  jurisdictions  the  salary  of  the  secretary  or  clerk  is  fixed  by 
statute,  varying  from  $1200  to  $6000.  In  nine  jurisdictions  the 
salary  of  the  attorney  to  the  commission  is  fixed  by  statute,  varying 
from  $2500  to  SiOjOoo.  In  most  of  the  jurisdictions  it  is  further 
provided  that  the  commission  may  employ  such  subordinates  as  it 
deems  essential  for  the  adequate  performance  of  its  duties.  The  fol- 
lowing pro\asion  from  the  recent  Massachusetts  public  service  com- 
mission law  indicated  the  general  tendency  of  commission  legislation 
in  the  matter  of  subordinate  employees:  "The  commission  may 
appoint  or  employ  such  engineers,  accountants,  statisticians,  bureau 
chiefs,  di\dsion  heads,  assistants,  inspectors,  clerks  and  other  subordi- 
nates as  it  may  deem  ad\dsable  on  such  terms  of  ofi&ce  or  employment 
and  at  such  salaries  as  it  may  deem  proper."  - 

In  eight  jurisdictions  commissioners  must  have  special  qualifica- 
tions prescribed  by  statute.  In  Georgia  one  of  the  commissioners 
must  be  experienced  in  law,  and  one  in  the  railroad  business  ;  in  Kansas 
one  must  be  "a  practical,  experienced  business  man,"  and  one  ex- 
perienced in  the  management  or  operation  of  a  common  carrier  or 
public  utility ;  in  Maine  the  chairman  must  be  learned  in  law,  one  of 
the  commissioners  must  be  a  civil  engineer  experienced  in  the  con- 
struction of  railroads,  and  one  experienced  in  the  management  and 

'  In  South  Carolina  the  salary  of  the  members  of  the  railroad  commission  is  Sigoo  per 
annum ;  the  members  of  the  public  service  commission  receive  $io  a  day  when  actually 
employed. 

2  Acts  IQ13,  chap,  dcclxxxiv,  Sect.  9. 


314  COMMISSIONS  AND   BOARDS 

operation  of  railroads ;  in  Michigan  one  must  be  an  attorney  having 
a  knowledge  of  and  experience  in  the  law  relating  to  common  carriers, 
and  the  other  two  must  have  a  knowledge  of  traffic  and  transportation 
matters ;  in  Nevada  the  chief  commissioner  must  be  an  attorney  at  law 
well  versed  in  the  law  of  railroad  regulation,  the  first  associate  com- 
missioner must  be  a  practical  railroad  man  familiar  with  the  operation 
of  railroads,  and  the  second  associate  must  have  a  general  knowledge 
of  railroad  fares,  freights,  tolls  and  charges ;  in  Virginia  at  least  one 
commissioner  must  have  the  same  qualifications  as  are  recjuired  for 
judges  of  the  supreme  court  of  appeals ;  in  West  Virginia  one  of  the 
commissioners  must  be  a  lawyer  of  not  less  than  ten  years'  actual 
experience  at  the  bar ;  and  in  Wisconsin  one  must  have  a  general 
knowledge  of  railroad  law,  and  each  of  the  others  must  have  a  general 
understanding  of  matters  relating  to  railroad  transportation.  In 
two  jurisdictions  the  qualifications  are  very  general  in  character.  The 
new  Massachusetts  public  service  law  provides  that  each  of  the  com- 
missioners shall  be  "a  competent  person"  ;  and  in  South  Carolina  it 
is  provided  that  the  members  of  the  public  service  commission  shall 
be  "reputable  and  competent  citizens  of  South  Carolina." 

Most  jurisdictions  provide  certain  disqualifications  for  membership 
in  a  railroad  or  public  utility  commission.  The  disqualification 
provisions  of  forty  jurisdictions,  stated  in  composite  form,  provide 
that  no  person  employed  by  or  connected  with  or  holding  any  official 
relation  to  or  owning  stocks  or  bonds  of  or  having  any  direct  or  in- 
direct or  pecuniary  interest  in  any  public  utility  over  w^hich  the  com- 
mission has  jurisdiction  or  of  the  kind  over  which  the  commission 
has  jurisdiction  is  eligible  to  membership  in  the  commission.  In 
Wisconsin  it  is  provided  that  no  person  who  has  a  pecuniary  interest 
in  any  railroad  or  telegraph  or  express  company  in  Wisconsin  or  else- 
where may  become  a  member  of  the  commission.  In  twenty-six 
jurisdictions  it  is  further  provided  that  no  commissioner,  officer  or 
employee  of  the  commission  may  engage  in  any  other  business,  em- 
ployment or  vocation,  or  hold  any  other  political  office.  In  Idaho 
and  West  Virginia  the  prohibition  extends  only  to  any  other  political 
office. 

The  determination  of  rules  of  procedure  and  practice  is  largely  in 
the  hands  of  the  commissions.  In  two-thirds  of  the  jurisdictions 
authority  is  specffically  conferred  upon  the  commissions  to  adopt 
rules  and  regulations  for  their  government  and  proceedings.  It  is 
usually  provided,  however,  that  all  hearings  must  be  open  to  the  public 
and  that  any  party  in  interest  may  be  heard  in  person  or  by  attorney. 
On  the  other  hand,  authority  is  almost  universally  given  to  the  com- 
missions to  administer  oaths,  subpoena  witnesses  and  order  the  pro- 
duction of  books,  records  and  memoranda  in  proceedings  held  before 
them.     Investigations  and  hearings  are  commonly  started  on  com- 


COMMISSIONS  AND   BOARDS  315 

plaint,  but  it  is  often  provided  that  the  commission  may  make  sum- 
mary investigations  and  hold  hearings  on  its  own  motion  or  initiative 
and  issue  orders  on  the  basis  of  its  findings. 

III.   The  General  Extent  of  Commission  Authority 

The  general  extent  of  commission  authority  may  be  examined 
from  three  points  of  view.  First,  the  scope  and  trend  of  regulation 
may  be  gathered  from  the  number  of  commissions  in  existence  and 
the  rapidity  of  their  growth.  There  are  to-day,  as  already  indicated, 
forty-eight  state  commissions,  representing  every  state  but  Delaware, 
Utah  and  Wyoming.  No  less  than  thirty  of  these  either  came  into 
existence  since  1907  or,  though  in  existence  prior  to  that  year,  they 
have  been  so  completely  changed  in  character  since  1907  that  they 
are  practically  new  commissions.  Early  in  1913  the  National  Civic 
Federation  completed  a  comprehensive  compilation  and  analysis  of 
laws  for  the  regulation  of  public  utilities  by  central  commissions.^ 
In  the  single  year  that  has  elapsed  since  the  results  of  that  investiga- 
tion were  published,  public  service  commissions  have  been  created  in 
two  states,  Idaho  and  West  Virginia,  where  no  utility  commissions 
had  before  existed,  and  seven  other  states  have  passed  complete  public 
service  laws  now  in  operation.^  In  addition  there  has  been  a  mass  of 
amendatory  legislation  whereby  already  existing  commissions  have 
been  very  largely  transformed. 

The  extent  of  commission  authority  may  also  appear  from  a  con- 
sideration of  the  kind  and  number  of  utilities  which  may  be  reached 
in  any  way  by  the  utility  commissions.  These  commissions  collec- 
tively have  some  degree  of  authority  over  corporations,  companies, 
associations,  joint  stock  companies,  partnerships  or  individuals  owning, 
operating,  managing  or  controlling  steam  railroads,  electric  and  street 
railways,  interurban  or  suburban  railways,  elevated  railroads  or 
subways,  automobile  railroads,  steamboats  and  other  water  craft, 
express  lines  and  messenger  lines,  signaling  facilities,  bridges  and 
ferries  connected  with  railroads,  pipe  lines  for  the  transportation  of 
oil  or  water,  sleeping,  parlor  and  drawing-room  cars,  terminals,  union 
depots,  docks,  wharves,  storage  elevators,  fast  freight  lines,  stage 
lines,  messenger  companies,  telegraph  and  telephone  companies, 
facilities  for  the  manufacture  and  sale  of  gas  or  electricity,  heat,  light, 
water,  power,  hot  or  cold  air  or  steam,  and  irrigation  and  sewage  facili- 
ties. Whether  a  given  business  constitutes  a  public  service  under- 
taking depends  largely  upon  the  social  and  industrial  conditions  that 

1  Commission  Regulation  of  Public  Utilities:  A  Compilation  and  Analysis  of  Laws  of 
Forty-three  States  and  of  the  Federal  Government  for  the  Regulation  by  Central  Commissions  of 
Railroads  and  Other  Public  Utilities.  The  National  Civic  Federation,  Department  on 
Regulation  of  Interstate  and  Municipal  Utilities,  New  York,  igi3. 

2  See  footnote  3. 


3i6  COMMISSIONS  AND   BOARDS 

prevail  in  the  community.  Whether,  upon  recognition  of  a  given 
undertaking  as  a  public  service  industry,  express  authority  to  regulate 
shall  be  granted  to  commissions,  depends  usually  upon  the  public 
policy  of  the  given  community  and  more  particularly  upon  the  political 
conditions  prevailing  in  that  community.  Therefore  the  utilities  to 
which  commission  jurisdiction  extends  vary  greatly  in  the  different 
states ;  but  the  principles  of  adequate  regulation,  as  embodied  in  the 
various  powers  conferred  upon  commissions,  are  found  to  depend  but 
very  slightly  upon  the  number  and  nature  of  utilities  regulated.  This 
is  but  a  recognition  that  public  service  industries  may,  in  most  re- 
spects, be  treated  as  a  homogeneous  class.  A  distinction  is  often  made 
between  interstate  and  municipal  utilities,  or  between  railroads  and 
other  public  utilities.  Commission  legislation  but  seldom  distinguishes 
to  any  striking  degree  between  these  classes  of  utilities,  although  there 
is  considerable  variety  in  the  names  of  the  commissions.  Twenty-two 
of  them  are  railroad  commissions ;  twelve  are  public  service  commis- 
sions ;  seven  are  public  utility  commissions ;  five  are  corporation 
commissions ;  one  is  a  railroad  and  warehouse  commission ;  and 
one  is  a  board  of  gas  and  electric  light  commissioners.  The  names 
of  the  commissions  do  not  always  indicate  the  scope  of  their 
jurisdiction.  Many  of  the  railroad  commissions  have  jurisdiction 
over  the  so-called  municipal  utilities :  as,  for  example,  the  railroad 
commissions  of  Oregon  and  Wisconsin.  And  most  of  the  public 
utility  or  public  ser\'ice  commissions  have  jurisdiction  over  rail- 
roads :  as,  for  example,  the  Massachusetts  and  New  York  com- 
missions. 

Finally,  the  extent  of  commission  jurisdiction  may  be  gathered  from 
the  powers  vested  in  the  commissions.  Two  types  of  regulating  boards 
have  appeared  in  American  experience :  the  ad\dsory  board,  with 
powers  of  investigation  and  recommendation,  of  which  the  old  Massa- 
chusetts railroad  commission  is  the  most  notable  example,  and  the 
mandatory  board,  with  power  to  order  as  well  as  to  recommend,  of 
which  the  New  York  and  Wisconsin  commissions  are  perhaps  the  best 
examples.  The  ad\isory  commission  relies  upon  publicity  and  the 
strength  of  public  opinion  for  the  enforcement  of  its  recommenda- 
tions; the  mandatory  commission  is  vested  with  sufficient  power  to 
compel  the  utilities  to  submit  to  its  orders. 

The  ad\isory  commission  has  been  abandoned  even  in  Massa- 
chusetts. Large  powers  are  now  granted  to  the  commissions;  the 
duty  of  utilities  to  comply  with  the  orders  of  the  commissions  is 
clearly  stated ;  the  commissions  are  given  authority  to  invoke  judicial 
process  for  the  enforcement  of  their  orders ;  and  usually  penalties, 
varying  in  stringency,  are  imposed  upon  utilities  for  failure  to  comply 
with  these  orders.  Since  the  enactment  of  the  Wisconsin  railroad 
commission  law  in  1905  and  of  the  Hepburn  amendments  to  the  act 


COMMISSIONS  AND   BOARDS  317 

to  regulate  commerce  in  1906,  practically  all  utility  legislation  has  pro- 
ceeded on  the  basis  of  clothing  commissions  with  ample  power  to  exer- 
cise continuous  supervision  over  public  utilities  and  to  afford  effective 
relief  to  any  party  in  interest  whenever  necessary.  The  authority  to 
prescribe  just  and  reasonable  rates,  therefore,  is  almost  universally 
enjoyed  by  the  modern  type  of  public  ser\dce  commission.  But  in 
addition  to  such  specific  powers  as  are  necessary  for  adequate  public 
control,  commissions  now  possess  large  general  powers  of  investigation 
and  super\-ision  over  the  property  and  business  of  public  utilities. 

This  general  power  of  regulation  is  stated  in  most  comprehensive 
fashion  in  the  Illinois  public  utilities  commission  law.  It  is  there 
provided  that 

The  commission  shall  have  general  supervision  of  all  public  utilities,  shall 
inquire  into  the  management  of  the  business  and  shall  keep  itself  informed 
as  to  the  manner  and  method  in  which  the  business  is  conducted.  It  shall 
examine  such  public  utilities  and  keep  informed  as  to  their  general  condi- 
tion, their  franchises,  capitalization,  rates  and  other  charges,  and  the  manner 
in  which  their  plants,  equipments  and  other  property  owned,  leased,  con- 
trolled or  operated  are  managed,  conducted  and  operated,  not  only  with 
respect  to  the  adequacy,  security  and  accommodation  afforded  by  their 
service  but  also  with  respect  to  their  compliance  with  the  provisions  of  this 
act  and  any  other  law,  with  the  orders  of  the  commission  and  with  the 
charter  and  franchise  requirements.^ 

The  following  provision  of  the  Wisconsin  public  utilities  act  is  found 
in  most  jurisdictions,  and  indicates  the  nature  of  the  powers  vested 
in  commissions  in  so  far  as  they  are  essential  to  a  proper  performance 
of  their  duties : 

The  commission  or  any  commissioner  or  any  person  or  persons  employed  by 
the  commission  for  that  purpose  shall,  upon  demand,  have  the  right  to  in- 
spect the  books,  accounts,  papers,  records  and  memoranda  of  any  public 
utility  and  to  examine,  under  oath,  any  officer,  agent  or  employee  of  such 
public  utility  on  relation  to  its  business  and  affairs. ^ 

IV.  The  Powers  of  Utility  Commissions 

We  may  now  present  a  brief  resume  of  the  more  important  specific 
powers  vested  in  public  utility  commissions. 

I .    Franchises 

The  important  provisions  in  commission  laws  looking  to  franchise 
regulation  aim  to  prevent  unnecessary  duplication  of  utility  properties 
through  the  introduction  of  competition  where  the  public  welfare 

1  Acts  IQ13,  house  bill  no.  goy,  Sect.  8. 

*  Laws  IQ07,  chap,  ccccxcix,  Sect.  1790111-38. 


3i8  COMMISSIONS  AND   BOARDS 

demands  the  recognition  of  monopoly,  and  to  provide  for  the  uninter- 
rupted operation  of  utilities,  under  adequate  control  of  rates  and 
service,  subject  to  mvmicipal  purchase  whenever  such  private  opera- 
tion ceases  to  promote  the  public  good. 

The  first  of  these  purposes  has  been  accomplished  by  requiring 
the  issue  of  a  certificate  of  convenience  and  necessity  by  the  com- 
mission before  a  public  utility  may  enter  upon  a  new  undertaking  or 
extend  an  existing  undertaking  or  exercise  franchise  privileges  pre- 
viously granted  but  not  theretofore  exercised.  The  essential  elements 
of  the  certificate  of  convenience  and  necessity  are  stated  as  follows  in 
the  New  Hampshire  pftblic  service  commission  law : 

No  public  utiUty  shall  commence  within  this  state  the  business  of  trans- 
niission  of  telephone  or  telegraph  messages  or  of  supplying  the  pubhc  with 
gas,  electricity  or  water,  or  shall  engage  in  such  business  or  begin  the  con- 
struction of  a  plant,  line,  main  or  other  apparatus  or  appHance  intended  to 
be  used  therein  in  any  city  or  town  in  which  at  the  time  it  shall  not  already 
be  engaged  in  such  business,  or  shall  exercise  any  right  or  privilege  under 
any  franchise  hereafter  granted  (or  any  franchise  heretofore  granted  but  not 
heretofore  actually  exercised)  in  such  town,  without  first  having  obtained 
the  permission  and  approval  of  the  commission.  The  commission  shall 
grant  such  permission  whenever  it  shall,  after  due  hearing,  determine  and 
find  that  such  engaging  in  business,  such  construction  or  such  exercises  of 
the  right,  privilege  or  franchise  would  be  for  the  pubhc  good  and  not  other- 
wise ;  and  may  prescribe  such  terms  and  conditions  upon  the  exercise  of 
the  privilege  granted  under  such  permission  as  it  shall  consider  for  the 
public  interest.  Authority  granted  under  provisions  of  this  section  maj^ 
only  be  exercised  within  two  years  after  the  same  shall  be  granted  and 
shall  not  be  exercised  thereafter. ^ 

Provisions  substantially  identical  with  the  New  Hampshire  section 
are  found  in  nineteen  jurisdictions.^  It  is  to  be  noted  that  pratically 
all  the  states  which  passed  complete  laws  during  1913  provide  for 
certificates  of  convenience  and  necessity. 

The  other  purpose  of  the  franchise  provisions  of  commissidii  laws 
is  to  recognize  the  essentially  monopolistic  character  of  public  utilities 
by  providing  for  their  continuous  operation,  during  good  behavior, 
under  a  permit  unlimited  as  to  time,  with  power  in  the  municipality 
to  exercise  an  option  of  purchase.  The  indeterminate  franchise  was 
first  established  in  Massachusetts,  where  street  railway  locations 
may  be  revoked  by  local  authorities  (the  revocation  being  subject  to 
approval  by  the  commission  in  certain  cases)  at  any  time  after  the 
expiration  of  one  year  from  the  date  of  the  franchise.  The  most 
thoroughgoing  indeterminate  franchise  law  is  to  be  fomid  in  Wis- 

1  Laws  iQii,  chap,  clxiv,  Sect.  13  (a). 

2  Arizona,  California,  Connecticut,  Idaho,  Illinois,  Indiana,  Kansas,  Maine,  Maryland, 
Massachusetts,  Michigan,  Missouri,  New  Hampshire,  New  York,  Pennsylvania,  South 
Dakota,  Vermont,  West  Virginia,  Wisconsin. 


COMMISSIONS  AND   BOARDS  319 

consin.  It  was  enacted  in  1907  and  materially  amended  in  1911.^ 
It  provides  for  indeterminate  permits  for  street  railways  and  for 
heat,  light,  water  and  power  companies  in  municipalities.  The 
indeterminate  permit  was  first  to  apply  to  all  future  grants,  with 
authority  for  companies  operating  under  limited-term  franchises  to 
exchange  them  for  indeterminate  permits.  The  amendment  of  191 1 
provided  that  all  franchises  theretofore  granted  were  to  become 
indetermmate.  The  essential  characteristics  of  the  principle  of  in- 
determinate franchises  are :  first,  that  the  public  service  corporation 
is  recognized  as  a  legal  monopoly  and  no  permit  is  granted  to  a 
competing  company  unless  public  convenience  and  necessity  require 
such  grant ;  and  second,  that  the  public  ser\dce  company,  in  accept- 
ing an  indeterminate  permit,  consents  to  the  purchase  of  its  plant  by 
the  municipality  in  which  it  operates.  The  purchase  price  is  to  be 
fixed  by  the  commission,  subject  to  review  by  the  courts.  The  new 
public  service  commission  law  of  Indiana  provides  for  indeterminate 
permits  similar  to  those  established  m  Wisconsin  .- 

2.  Security  Issues 

In  fifteen  jurisdictions  the  commission  has  authority  to  supervise 
the  issue  of  stocks  and  bonds. ^  In  some  of  these  jurisdictions  the  com- 
mission's power  is  stated  in  general  terms  and  does  not  provide  for  a 
strict  control  of  capitalization.  The  New  Jersey  law,  for  example, 
merely  provides  that  no  public  utility  shall 

issue  any  stocks,  stock  certificates,  bonds  or  other  evidences  of  indebtedness 
payable  in  more  than  one  year  from  the  date  thereof  until  it  shall  have  first 
obtained  authority  from  the  board  for  such  proposed  issues.  It  shall  be 
the  duty  of  the  board,  after  hearing,  to  approve  of  any  such  proposed  issue 
maturing  in  more  than  one  year  from  the  date  thereof,  when  satisfied  that 
the  same  is  to  be  made  in  accordance  with  law  and  the  purpose  of  such  issue 
be  approved  by  said  board. ^ 

In  many  of  the  states,  however,  the  commission  has  complete  control, 
definite  financial  standards  being  prescribed  and  provision  being  made 
for  thorough  investigation  and  valuation  by  the  commission  before 
approval  of  security  issues,  and  for  detailed  supervision  of  the  disposi- 
tion of  the  proceeds  after  the  commission's  certificate  has  been  granted. 
The  Wisconsin  stock  and  bond  law,*  applying  to  railroads,  street 

1  Laws  1007,  chap.  ccccxcLx,  Sects.  i7g7m-74  to  1707111-86.  Laws  1007,  chap,  dlxxviii, 
Sects.  i7C)7t-l  to  I7g7t-i2.  Laws  iQog,  chaps.  cLxxx,  ccxiii.  Laws  ion,  chaps,  xlvi, 
dxcvi,  dclxii. 

2  Acts  1 01 3,  house  bill  no.  361,  Sects.  loo-iog. 

3  Arizona,  California,  Kansas,  Illinois,  Indiana,  Massachusetts,  Michigan,  Missouri, 
New  Hampshire,  New  Jersey,  New  York,  Pennsylvania,  Texas,  Vermont,  Wisconsin. 

*  Laws  iQii,  chap,  cxcv.  Sect.  18  (e). 

*  Ibid.  chap,  dxciii. 


320  COMMISSIONS  AND   BOARDS 

railway,  telegraph,  telephone,  express,  freight  line,  sleeping  car,  light, 
heat,  water  and  power  corporations,  establishes  the  most  comprehen- 
sive system  of  regulation  of  security  issues  by  commission.  It  affords 
a  practical  guaranty  by  the  state  that  there  is  an  equivalence  between 
the  amount  of  outstanding  securities  and  the  investment  upon  which 
the  utilities  are  entitled  to  a  fair  return.  Legislation  of  similar  scope 
may  be  found  in  five  other  states,  three  of  which  legislated  during  the 
past  year. 

3.    Rates  and  Services 

Commission  laws  lay  down  the  basis  of  rate-making,  or  the  requi- 
sites of  lawful  rates,  declare  unjust  discrimination  unlawful,  prescribe 
publicity  in  the  making  of  rates  and  schedules,  and  vest  in  commis- 
sions the  power  to  fiux  rates  in  accordance  with  the  principles  thus  pre- 
scribed. 

It  is  almost  invariably  provided  that  rates  and  charges  must  be  just 
and  reasonable,  and  the  commissions  are  given  authority  to  enforce 
the  standard  thus  established.  In  many  jurisdictions  the  various 
elements  that  must  be  considered  and  the  various  devices  that  may 
be  adopted  in  the  establishment  of  reasonable  rates  by  utilities  and 
commissions  are  further  prescribed.  The  chief  elements  emphasized 
by  the  statutes  for  lawfiil  rates  are  that  a  due  regard  be  had  "to  a 
reasonable  average  return  upon  the  value  of  the  property  actually 
used  in  the  public  service  and  of  the  necessity  of  making  reserva- 
tion out  of  income  for  surplus  and  contingencies."  ^  Twenty-four 
jurisdictions  make  express  provision  for  valuation  of  the  property 
of  public  utilities  by  commissions.^  These  valuations  are  sometimes 
used  for  capitalization  and  purchase  as  well  as  for  rate-making  pur- 
poses. The  tendency  in  these  valuation  pro\'isions  is  to  vest  in  com- 
missions ample  power  for  the  successful  ascertainment  of  utility 
valuations.  Such  elaborate  valuation  provisions  may  be  foimd  in 
Ohio,^  Pennsylvania,'*  Washington^  and  Wisconsin.^  The  main  device 
provided  by  statute  by  which  reasonable  rates  may  be  secured  is  the 
sliding  scale,  chiefly  applicable  to  the  gas  industry,  but  also,  in  some 
cases,  to  electric  companies.  In  addition  to  the  Boston  sliding  scale 
act  in  Massachusetts,^  nine  jurisdictions  authorize  utilities  to  establish 

1  New  York :  Laws  igio,  chap,  cccclxxx,  Sect.  97. 

2  Arizona,  Arkansas,  California,  Florida,  Georgia,  Illinois,  Indiana,  Kansas,  Marj-land, 
Massachusetts,  Michigan,  Minnesota,  Missouri,  Nebraska,  New  Jersey,  Ohio,  Oklahoma, 
Oregon,  Pennsylvania,  South  Dakota,  Texas,  Washington,  West  Virginia,  Wisconsin. 

'  Laws  IQ13,  house  bill  no.  5S2,  Sects.  21-31. 

^  Ibid.  no.  854,  art.  II,  Sect,  i  (k) ;  Art.  Ill,  Sects.  4  (a),  6;  Art.  V,  Sects.  19-23. 
^  Laws  iQii,  chap,  cxvii.  Sect.  92. 

^  La%vs  IQ07,  chap,  ccccxcix,  Sects.  i797m-s,  i797m-6,  i797m-i9,  i797m-82  to  1797m- 
86.     Laws  IQ07,  chap,  dlxxviii,  Sect.  17971-8.     Laws  1911,  chap,  dclxii. 
'  Acts  1Q06,  chap,  ccccxxii. 


COMMISSIONS  AND   BOARDS  321 

the  sliding  scale  for  the  automatic  adjustment  of  charges  and  divi- 
dends under  commission  supervision.^ 

It  is  almost  invariably  provided  also  that  unjust  discrimination 
is  prohibited,  and  the  commissions  are  given  authority  to  enforce 
the  prohibitions.  Unjust  discrimination  is  variously  defined.  As 
defined  in  the  commission  laws  collectively  it  consists  in  charging  a 
greater  or  less  compensation  to  one  person  than  to  another  for  like 
and  contemporaneous  ser\-ice ;  in  charging  rates  other  than  those 
prescribed  by  law  or  specified  in  published  schedules,  refunding,  remit- 
ting or  rebating  any  portions  of  such  rates,  or  extending  privileges  or 
facilities  not  uniformly  open  to  all ;  in  charging  a  less  compensation 
in  consideration  of  the  furnishing  by  utilities  of  any  part  of  the  facili- 
ties incident  to  the  service ;  in  charging  a  less  compensation  in  con- 
sideration of  the  size  of  the  shipment  or  the  extent  of  the  service ; 
in  charging  a  greater  compensation  for  a  shorter  than  for  a  longer  dis- 
tance or  for  a  smaller  than  for  a  larger  ser\dce ;  in  granting  to  any 
person,  corporation,  locality  or  any  particular  description  of  service 
any  undue  or  unreasonable  preference  or  advantage,  or  in  subjecting 
the  same  to  any  undue  or  unreasonable  prejudice  or  disadvantage ;  in 
assisting  or  permitting  patrons  to  secure  special  favors  or  advantages, 
or  rates  other  than  those  lawfully  established ;  in  soliciting,  accepting 
or  receiving  special  favors  or  advantages,  or  rates  other  than  those 
lawfully  established.  There  are  also  general  prohibitions  against 
offering,  granting,  soliciting  or  accepting  free  or  reduced  rate  or  special 
service,  with  elaborate  lists  of  exceptions ;  special  prohibitions,  appli- 
cable to  public  officials  and  members  of  political  organizations ;  and 
requirements  that  lists  of  persons  to  whom  free  or  reduced  rate  or 
special  service  has  been  granted  shall  be  published  and  filed  with  the 
commission.  The  provisions  also  indicate  the  kinds  of  special  treat- 
ment which  constitute  justifiable  discrimination  and  authorize  the 
commissions  to  determine  under  what  conditions  such  circumstances 
exist  as  make  discrimination  justifiable. 

Again,  it  is  almost  invariably  provided  that  utilities  submit  to  full 
publicity  in  the  establishment  and  change  of  their  rates  and  schedules, 
and  authority  is  vested  in  the  commissions  to  render  publicity  in  rate- 
making  effective.  Utilities  are  thus  ordered  to  file  their  schedules  of 
rates  with  the  commissions,  after  due  notice  of  their  adoption ;  the 
matters  to  be  contained  in  these  schedules  are  prescribed  in  detail ; 
the  forms  of  schedules  are  made  subject  to  the  approval  of  commis- 
sions ;  it  is  pro\dded  that  the  schedules  be  published  and  posted ; 
the  filing,  publishing  and  posting  of  rate  schedules  are  often  made  a 
condition  precedent  to  the  exercise  by  utilities  of  the  right  to  do  busi- 
ness ;    and  utilities,  in  many  instances,  are  required  to  file  with  the 

1  Arizona,  California,  Idaho,  Maryland,  Missouri,  New  York,  Ohio,  Peiinsj^lvania,  Wis- 
consin. 


322  COMMISSIONS  AND   BOARDS 

commissions  copies  of  leases,  contracts  and  arrangements  made  with 
other  utilities. 

The  most  important  powers  as  to  rates  are  found  in  the  provisions 
which  authorize  commissions  to  regulate  or  prescribe  the  rates  and 
charges  of  utilities,  establish  the  procedure  to  be  followed  in  the  exer- 
cise of  these  powers,  and  indicate  the  legal  effect  to  be  given  to  the 
rates  and  charges  so  established.  All  the  states  now  give  the  commis- 
sions mandatory  powers  over  rates.  In  many  of  the  jurisdictions 
there  is  language  so  broad  that  it  may,  by  liberal  interpretation,  be 
construed  to  vest  in  the  commissions  power  to  fix  rates  in  the  first 
instance.  WTien  the  legislation  m  each  jurisdiction  is  taken  as  a 
whole,  however,  the  authority  of  the  commissions  in  practically  all  of 
the  commission  states  is  limited  to  the  power  on  its  own  motion  or 
on  complaint,  after  investigation,  to  declare  unreasonable  rates  and 
charges  previously  in  force,  and  to  prescribe  others  in  lieu  thereof  to  be 
followed  in  the  future.  In  other  words,  in  spite  of  the  large  power  over 
rates  vested  in  commissions,  the  right  to  initiate  rates  is  practically 
every^vhere  reserved  to  the  utilities;  but  in  about  one-third  of  the 
jurisdictions  the  commissions  are  given  the  additional  authority  to 
suspend  the  operation  of  rates  fixed  by  utilities  pending  an  investi- 
gation as  to  their  reasonableness  undertaken  by  the  commissions. 
In  some  jurisdictions  the  rates  fixed  by  commissions  are  considered 
prima  facie  lawful  and  in  force  until  found  unreasonable  upon  review 
by  a  proper  court ;  in  some  states  their  operation  is  suspended  until  de- 
clared reasonable  upon  judicial  review. 

Many  of  the  rate  provisions,  in  so  far  as  they  empower  commissions 
to  super\-ise  the  business  of  utilities,  apply  to  regulations,  practices 
and  service.  But  while  more  than  one-half  of  the  states  provide 
that  the  service  furnished  by  utilities  must  be  reasonable  or  that  the 
facilities  must  be  adequate  and  safe,  only  about  one-third  of  the  com- 
mission jurisdictions  vest  sufficient  authority  in  the  commissions 
to  render  these  requirements  effective.  The  practice  in  the  past  has 
been  to  establish  by  direct  legislative  enactment  absolute  standards 
of  service  and  safety,  and  specific  facilities  and  safety  appliances. 
The  present  tendency,  however,  as  e\'idenced  by  much  of  the  recent 
legislation,^  is  to  clothe  commissions  with  power  over  ser\ice  and 
facilities,  both  as  to  adequacy  and  safety,  commensurate  with  their 
power  over  rates.  The  more  recent  commissions,  therefore,  are 
authorized  to  prescribe  reasonable  ser\'ice  standards  and  to  provide 
for  such  inspection  and  testing  of  service  and  facilities  as  will  insure 
their  adequacy  and  safety. 

1  Idaho,  Illinois,  Indiana,  Missouri,  Pennsylvania,  West  Virginia. 


COMMISSIONS  AND   BOARDS  323 

4.   Accounts  and  Reports 

The  regulation  of  accounts  and  reports  serves  to  provide  for  com- 
missions the  data  essential  to  an  adequate  control  of  capitalization, 
rates  and  service. 

There  are  provisions  for  the  regulation  of  accounts  in  twenty- 
eight  jurisdictions.  The  most  general  recjuirement  is  that  by  which 
authority  is  granted  to  commissions  to  establish  a  system  of  uniform 
accounts  for  public  utilities,  with  power  to  prescribe  the  forms  of 
accounts,  records  and  memoranda  and  to  indicate  the  manner  in 
which  they  shall  be  kept  or  to  classify  public  utilities  and  establish 
a  system  of  accounts  and  prescribe  forms  for  each  class.  In  most 
jurisdictions  this  power  may  be  exercised  in  the  discretion  of  the  com- 
mission. Sometimes,  as  in  the  new  Indiana  law,  the  authority  to 
prescribe  accounting  practices  is  made  mandatory  upon  the  com- 
mission.^ In  a  number  of  the  jurisdictions  it  is  further  made  un- 
lawful for  utilities  to  keep  any  other  accounts,  records  or  memoranda 
than  those  prescribed  or  approved  by  the  commission.  In  the  case  of 
common  carriers,  the  commissions  are  often  specifically  required  to 
conform,  as  far  as  possible,  to  the  system  ancl  form  of  accounts  es- 
tablished and  prescribed  from  time  to  time  by  the  Interstate  Com- 
merce Commission.  In  about  one-fourth  of  the  states  —  Arizona,  ^ 
California,^  Idaho,'*  Illinois,^  Indiana,"  Missouri,^  New  Jersey,^ 
Ohio,^  Oregon, *''  Pennsylvania,^*  Wisconsin  *-  —  special  depreciation 
accounts  are  provided  for:  the  commission  is  empowered  to  require 
proper  and  adequate  depreciation  or  deferred  maintenance  accounts 
to  be  kept  in  accordance  with  prescribed  forms  and  regulations  when- 
ever it  shall  determine  that  depreciation  accounts  can  reasonably  be 
required.  And  the  commissions  are  given  authority  to  examine  as 
well  as  to  prescribe  accounts ;  that  is,  the  commission  or  the  com- 
missioners or  their  duly  authorized  agents  or  examiners  may  have 
access  to  the  accounts  of  the  utilities  and  may  at  all  reasonable  times 
examine  and  inspect  them.  Heavy  penalties  are  usually  imposed 
for  violations  of  accounting  provisions. 

The  duty  is  almost  invariably  imposed  upon  utilities  to  transmit  to 

1  Acts  IQ13,  house  bill  no.  361,  Sect.  15. 

2  Session  Laws  IQ12,  chap,  xc,  Sect.  40. 

^Statutes  iQii,  ist  extra  session,  chap,  xiv,  Sect.  4g. 

*  Session  Laws  iqij,  house  bill  no.  21,  Sect.  47. 

^  Acts  1Q13,  house  bill  no.  Q07,  Sect.  14. 

^  Ibid,  house  bill  no.  361,  Sects.  22-25. 

'  Public  service  commission  law  of  March  17,  1913,  Sect.  61. 

^  Laws  IQII,  chap,  cxcv,  Sect.  17  (f). 

^Ibid.  no.  325,  Sects.  51,  52. 
^'^  General  Laws  iQii,  chap,  ccbcxix,  Sect.  17. 
"  Laws  IQ13,  no.  854,  Art.  II,  Sect,  i  (i) ;  art.  V,  Sect.  15 
^  Laws  iQOj,  chap,  ccccxcix,  Sect.  i797m-i5. 


324  COMMISSIONS   AND   BOARDS 

the  commission  at  specified  intervals  or  at  such  time  as  the  commission 
may  designate,  regular  reports  of  their  doings  setting  forth  such  facts, 
statistics  and  particulars  relative  to  their  business,  receipts  and  ex- 
penditures as  may  be  required  by  the  commission.  In  many  states 
special  reports  may  also  be  called  for  by  the  commission  at  different 
intervals.  It  is  often  provided  that  the  commission  shall  furnish 
blank  forms  for  regular  or  special  reports ;  and  the  reports  must  be 
duly  sworn  to  or  verified  by  such  officers  or  persons  as  the  commis- 
sion may  designate.  Full  and  specific  answers  must  be  given  to  all 
questions  propounded  by  the  commission,  or  sufficient  reasons  must  be 
stated  for  failure  to  make  such  answers.  In  case  the  reports  or  returns 
appear  to  be  defective  or  erroneous,  the  commission  is  usually  given 
the  power  to  order  their  amendment  within  a  specified  time.  It 
was  very  common  in  the  older  utility  laws,  particularly  for  the  regula- 
tion of  railroads  and  common  carriers,  to  prescribe  by  statute  the 
detailed  contents  of  annual  reports ;  but  in  pursuance  of  the  general 
trend  of  giving  commissions  ample  discretion  in  the  regulation  of  utili- 
ties, the  more  advanced  legislation,  including  most  of  the  recent  laws, 
vests  complete  power  in  the  commissions  as  to  the  scope  of  the  reports 
of  utilities.  Heavy  penalties  are  usually  imposed  for  the  violation 
of  provisions  relating  to  reports. 


A  GOVERNMENT   OF   LAW  AS  DISTINGUISHED   FROM 
A   GOVERNMENT  OF   FUNCTIONARIES 

By  Hon.  Hannis  Taylor 

(From  the  Green  Bag,  September,  1906) 

Francis  Lieber  has  told  us,  in  his  "Civil  Liberty  and  Self-Govern- 
ment,"  p.  108,  that  the  "guarantee  of  the  supremacy  of  the  law  leads 
to  a  principle  which,  so  far  as  I  know,  it  has  never  been  attempted  to 
transplant  from  the  soil  inhabited  by  Anglican  people,  and  which, 
nevertheless,  has  been,  in  our  system  of  liberty,  the  natural  production 
of  a  thorough  government  of  law  as  distinguished  from  a  government 
of  functionaries.  It  is  so  natural  in  the  Anglican  race  that  few  think 
of  it  as  essentially  important  to  civil  liberty,  and  it  is  of  such  ^•ital 
importance  that  none  who  have  studied  the  acts  of  government  else- 
where can  help  recognizing  it  as  an  indispensable  element  of  civil 
liberty."  ^  In  giving  expansion  to  the  same  thought  at  a  later  time  Mr. 
Dicey,  who  fills  the  chair  of  Blackstone  at  Oxford,  has  said:  "In 
England  the  idea  of  legal  equality,  or  of  the  universal  subjection  of  all 

1  Law  of  the  Constitution,  p.  1S3. 


COMMISSIONS  AND   BOARDS  325 

classes,  to  one  law  administered  by  the  ordinary  courts,  has  been 
pushed  to  its  utmost  Hmit.  With  us  every  ofi&cial,  from  the  Prime 
Minister  down  to  a  constable  or  a  collector  of  taxes,  is  under  the 
same  responsibility  for  every  act  done  without  legal  justification  as 
any  other  citizen.  The  Reports  abound  with  cases  in  which  officials 
have  been  brought  before  the  courts  and  made,  in  their  personal 
capacity,  liable  to  punishment  or  to  the  payment  of  damages  for  acts 
done  in  their  official  character  but  in  excess  of  their  lawful  authority. 
A  colonial  governor,  a  secretary  of  state,  a  military  officer,  and  all 
subordinates,  though  carrying  out  the  commands  of  their  superiors,  are 
as  responsible  for  any  act  which  the  law  does  not  authorize  as  is  any 
private  and  unofficial  person."  Under  the  Anglican  system  of  civil 
liberty  any  man  may  at  his  peiil  resist  any  act  which  he  con- 
siders ULlawful,  and  then  have  the  question  of  legality  passed 
upon  in  the  ordinary  courts  under  the  law  of  the  land.  Anglican 
law  knows  no  special  or  official  tribunals  in  which  or  special  rules 
under  which  acts  performed  by  officials  claiming  to  have  legal 
authority  can  be  tested.  In  countries  not  governed  by  Anglican  law 
obedience  to  the  officer  is,  as  a  general  rule,  demanded,  and  redress 
can  only  take  place  after  previous  obedience.  In  France,  for  instance, 
no  matter  whether  the  government  be  Royal,  Imperial,  or  Republican, 
the  doctrine  has  always  prevailed  that  the  government,  as  representing 
the  state,  possesses  rights  and  powers  as  against  individuals  superior 
to  and  independent  of  the  ordinary  laws  of  the  land.  That  theory,  so 
hard  for  us  to  understand,  is  the  real  basis  of  a  droit  administratif 
under  which  officials,  that  is  all  persons  employed  in  the  service  of 
the  state,  are,  in  their  official  capacity,  protected  from  the  ordinary  law 
of  the  land,  exempted  from  the  jurisdiction  of  the  ordinary  tribunals 
and  subject  in  many  respects  to  official  law  administered  by  official 
bodies.  For  this  droit  administratif,  which  under  one  name  or  another 
prevails  in  most  of  the  continental  states,  there  is  in  English  phrase- 
ology no  proper  equivalent  for  the  good  and  sufficient  reason  that  the 
thing  itself  does  not  exist.  The  absence  of  any  such  branch  of  law 
in  the  jurisprudence  of  the  United  States  at  once  attracted  de  Tocque- 
ville's  attention  ;  and  in  183 1  he  wrote  to  a  judge  in  his  own  country 
asking  not  only  for  an  explanation  of  this  contrast  between  French 
and  American  institutions,  but  for  an  exposition  of  the  general  ideas 
{notions  generahs)  governing  the  droit  administratif  of  his  own  country.^ 
If,  under  the  French  system,  any  official,  no  matter  whether  a  minister, 
a  prefect,  or  a  policeman,  commits  any  official  act  n  excess  of  his  legal 
authority,  the  rights  of  the  individual  aggrieved  and  the  mode  in  which 
these  rights  are  to  be  determined  are  questions  of  droit  administra- 
tif which  is  administered  by  administrative  courts  {trihunaux  adminis- 
tratif s)  at  the  head  of  which  stands  the  Council  of  State.     To  illustrate 

1  CEtivres  Completes,  Vol.  VII,  p.  66. 


326  COMMISSIONS  AND   BOARDS 

from  recent  events  in  France  growing  out  of  the  conflicts  between 
church  and  state:  Suppose  a  policeman  acting  under  the  orders  of 
his  superiors,  breaks  into  a  monastery  and,  after  seizing  the  property 
of  its  inmates,  expels  them  from  the  house.  When  he  is  charged  with 
acts  which  in  English  law  w-ould  be  called  trespass  and  assault,  he 
pleads  that  he  is  acting  under  government  orders  in  execution  of  a  de- 
cree dissolving  certain  religious  societies.  When  the  policeman  in 
question  is  brought  before  an  ordinary  civil  court  and  threatened 
with  the  ordinary  law  of  the  land,  as  he  would  be  in  any  country  sub- 
ject to  Anglican  law,  an  objection  is  raised  at  once  that  the  civil  courts 
have  no  jurisdiction  of  such  a  case.  The  "conflict  "  which  thus  arises 
is  not  determinable  however  by  the  ordinary  judges  because  in  that 
event  they  would  be  allowed  to  pronounce  a  final  judgment  on  the 
limits  of  their  own  authority  in  defiance  of  that  principle  of  French 
law  which  declares  that  "administrative  bodies  must  never  be  troubled 
in  the  exercise  of  their  functions  by  any  act  whatever  of  the  judicial 
power."  To  meet  such  contingencies  there  exists  in  France  a  Tri- 
bunal des  Conflits,  a  court  for  the  settlement  of  conflicts  of  jurisdiction, 
whose  special  function  is  to  determine  finally  whether  a  given  case, 
say  an  action  against  a  policeman  for  such  a  trespass  and  assault  as 
has  been  described,  comes  within  the  jurisdiction  of  the  civil  courts, 
or  of  the  administrative  courts.  If  within  the  jurisdiction  of  the  latter 
then  the  administrative  law,  unknown  to  Anglican  countries,  at  once 
supersedes  w^hat  we  call  the  law  of  the  land. 

In  the  light  of  the  foregoing  contrast  it  will  be  easier  to  comprehend, 
I  trust,  Lieber's  declaration  that  the  "guarantee  of  the  supremacy 
of  the  law  leads  to  a  principle  which,  so  far  as  I  know,  it  has  never  been 
attempted  to  transplant  from  the  soil  inhabited  by  Anglican  people, 
and  which  nevertheless  has  been  in  our  system  of  liberty  the  natural 
production  of  a  thorough  government  of  law,  as  distinguished  from  a 
government  of  functionaries."  Let  us  glance  for  a  moment  at  the 
historical  origin  of  this  supremacy  of  the  law  as  embodied  in  what 
we  call  the  law  of  the  land  to  which  the  high  and  low  are  subject  in 
the  ordinary  tribunals.  Upon  that  rock  has  been  built  the  con- 
stitutional church  in  England  and  the  United  States.  The  group  of 
Low  Dutch  tribes  from  the  neck  of  the  Danish  peninsula,  out  of 
whose  union  arose  the  English  people,  transferred  to  Britain  that 
rough  yet  vigorous  system  of  political,  judicial,  and  military  or- 
ganization which  everywhere  prevailed  among  the  Teutonic  tribes  of 
the  fatherland. 

Whenever  a  district  of  country  was  won  from  the  native  race,  the 
conquerors  encamped  upon  the  soil;  and  then,  after  dividing  the  land 
upon  the  basis  of  that  peculiar  system  that  rested  at  once  on  military 
and  tribal  divisions,  they  organized  self-governing  communities  which 
became  nurseries  of  English  customary  law.     Just  as  the  English 


COMMISSIONS   AND   BOARDS  327 

language  is  the  outcome  of  the  fusion  of  the  dialects  spoken  in  those 
local  communities,  so  English  customary  law,  as  a  distinct  and  entire 
code,  is  the  outcome  of  the  fusion  of  the  customary  or  popular  law 
developed  therein.  The  primitive  system  of  law  which  thus  matured 
in  the  provincial  courts  of  the  English  people,  like  all  archaic  law,  took 
on  an  iron  rigorism  of  form  which  rendered  it  unelastic.  Its  entire 
inadequacy  to  the  wants  of  a  progressive  society  never  became  ap- 
parent, however,  until  the  Norman  Conquest  drew  England  into  the 
march  of  continental  nations.  The  most  important  single  outcome 
of  that  event  was  the  centralization  of  justice  through  the  establish- 
ment of  a  great  court  at  Westminster  by  whose  agency  a  new  system 
of  royal  law,  which  found  its  source  in  the  person  of  the  king,  was 
brought  in  to  remedy  the  defects  of  the  old,  unelastic  system  of  cus- 
tomary law  prevailing  in  the  provincial  courts  of  the  people.  This 
new  system  of  royal  law  was  sent  down  to  the  popular  courts  existing 
in  the  shires  by  the  hands  of  the  itinerant  justices  who  there  repre- 
sented the  crown  first  for  fiscal  then  for  judicial  purposes.  During 
the  reigns  of  the  four  Norman  kings  the  English  and  Norman  races 
became  fused  together  into  one  nation  scarcely  conscious  yet  of  its 
own  unity.  As  soon  as  that  condition  of  things  w^as  reached  in  which 
it  was  difficult  to  distinguish  an  Englishman  from  a  Norman,  all  legal 
distinctions  in  favor  of  one  race  as  against  the  other  necessarily  passed 
out  of  view.  The  substructure  of  the  new  political  and  legal  fabric 
which  thus  arose  out  of  the  amalgamation  of  races  was  English,  the 
superstructure  was  Norman.  The  welding  together  of  the  two 
systems  received  a  temporary  check  during  the  period  of  disorganiza- 
tion known  as  the  reign  of  Stephen,  a  period  during  which  the  royal 
authority  which  Henry  I  had  done  so  much  to  consolidate  came  to  an 
end,  while  England,  for  the  first  and  last  time  in  her  history,  sank  into 
that  state  of  feudal  anarchy  which  the  Conqueror  by  his  far-sighted 
policy  had  striven  to  prevent.  For  a  time  the  land  lay  helpless  in 
the  hands  of  the  barons,  who  intrenched  themselves  in  their  unlicensed 
castles  and  arrogated  to  themselves  all  the  rights  of  petty  despots. 
The  great  mission  of  Henry  II,  Henry  of  Anjou,  was  to  reestablish 
order  and  with  it  the  reign  of  equal  law.  The  full  scope  of  Henry's 
policy  was  not  only  to  establish  the  reign  of  law,  but  to  reduce  all 
orders  of  men  to  a  state  of  equality  under  the  same  system  of  law ;  in 
other  words,  to  establish  the  supremacy  of  the  law  as  afterwards 
understood.  The  most  formidable  obstacles  which  stood  in  the  way 
of  the  complete  execution  of  that  design  were  the  baronage  on  the  one 
hand,  with  their  private  jurisdictions,  and  the  clergy  on  the  other,  with 
their  far-reaching  claims  of  exemption  from  the  ordinary  process 
of  the  temporal  tribunals.  When  Henry  II  passed  away,  the  prod- 
igal knight-errant  who  succeeded  him,  Richard  I,  impressed  upon  the 
nation,  then  marshaled  in  the  ranks  of  the  three  estates,  the  necesuty 


328  COMMISSIONS  AND   BOARDS 

for  concert  of  action  against  a  central  despotism  capable  of  op- 
pressing every  class  by  the  imposition  of  inordinate  taxation.  The 
hope  that  the  accession  of  John  would  relieve  that  condition  was 
quickly  disappointed.  His  needs  proved  as  great  as  Richard's,  and 
the  money  he  obtained  was  used  for  purposes  that  appealed  to  no 
one  but  himself.  The  excessive  exactions  demanded  both  in  money 
and  service,  coupled  to  the  unpopular  uses  to  which  these  were  put, 
form  the  keynote  of  the  whole  reign ;  they  form  the  background  of 
Magna  Charta.  When  viewed  in  the  light  of  the  circumstances 
attending  its  execution,  the  fact  clearly  appears  that  while  that  great 
instrument  was  issued  in  the  form  of  a  royal  grant,  it  was  really  a  con- 
situtional  compact  entered  into  by  the  royal  authority  on  the  one 
hand  and  the  nation  marshaled  in  the  ranks  of  the  three  estates  on 
the  other.  There  is  nothing  in  the  provisions  of  the  charter  to  recall 
obsolete  distinctions  of  English  and  Norman  blood ;  there  is  nothing 
to  suggest  differences  of  English  and  Norman  law.  The  very  absence 
of  such  provisions  clearly  shows  that  such  distinctions  had  passed 
forever  away.  The  winning  of  the  Great  Charter  was  the  final  con- 
summation of  the  work  of  union,  and  this  first  great  act  of  the  united 
nation  was  not  in  the  path  of  political  experiment.  The  provisions 
of  the  charter  embody  no  abstract  theory  of  government ;  they  con- 
sist simply  of  a  summing  up  of  the  traditional  liberties  of  the  English 
nation,  with  such  modifications  as  those  liberties  had  suffered  through 
the  results  of  the  Norman  Conquest.  The  royal  pretentions  born  of 
that  event  reached  the  limit  of  their  growth  when  both  Richard  and 
John,  accepting  the  imperialist  theories  of  Glanvill,  held  that  the  will 
of  the  prince  was  the  law  of  the  land.  The  reckless  attempts  made  by 
John  to  enforce  that  theory  finally  brought  about  the  armed  conflict 
between  the  nation  and  the  king.  Upon  the  part  of  the  nation  it 
was  claimed  that  the  law  of  the  land  was  not  the  will  of  the  prince,  but 
the  immemorial  laws  of  the  English  Kingdom,  with  such  modifications 
and  amendments  as  those  laws  had  suffered  in  the  process  of  Norman 
centralization.  After  the  coming  of  the  Conqueror,  the  Old-English 
system  of  customary  law  was  generally  appealed  to  as  "the  laws  of 
good  King  Edward,"  while  the  changes  which  it  suffered  through  the 
result  of  the  Conquest  were  generally  described  as  the  amendments 
made  by  King  William.  There  is  no  attempt  in  the  Charter  to  wipe 
out  the  irrevocable  effects  of  the  Conquest ;  the  new  system  of  central 
administration  and  the  system  of  feudal  tenures  are  both  recognized 
as  abiding  elements  in  the  constitution.  The  effort  is  to  fix  the  limits 
of  innovation,  to  define  the  extent  to  which  the  centralizing  and  feudal- 
izing process  to  which  the  Conquest  gave  birth  shall  be  permitted  to 
abridge  the  immemorial  freedom  in  the  time  to  come. 

Only  in  the  light  of  such  an  historical  preface  is  it  possible  to  ex- 
pound the  judicial  clauses  of  the  Great  Charter  in  which  its  framers, 


COMMISSIONS   AND   BOARDS  329 

after  making  provisions  touching  the  character  and  appointment  of 
judicial  officers,  announced  a  series  of  practical  rules,  both  general 
and  special,  for  the  government  of  all  courts  in  the  administration  of 
justice.  First  among  those  general  rules  stands  the  famous  declaration 
that  "no  freeman  shall  be  arrested  or  detained  in  prison,  or  deprived 
of  his  freehold,  or  outlawed,  or  banished,  or  in  any  way  molested; 
and  we  will  not  set  forth  against  him,  nor  send  against  him,  unless  by 
the  lawful  judgment  of  his  peers  and  by  the  law  of  the  land."  The 
technical  student  of  English  law  who  expounds  the  phrase  per  judicium 
parium,  in  the  light  of  recent  research,  does  not  find  in  it  a  guarantee 
of  trial  by  jury,  which  had  not  then  come  into  existence.  He  finds 
that  the  phrase  "the  lawful  judgment  of  his  peers  "  was  only  intended 
to  guarantee  to  the  accused  a  trial  by  his  "equals."  That  right  was 
not  originally  a  class  privilege  of  the  aristocracy  but  a  right  shared  by 
all  grades  of  freeholders  ;  whatever  their  rank  they  could  not  be  tried  by 
their  inferiors.  In  that  respect  English  custom  did  not  differ  from  the 
procedure  prescribed  by  the  feudal  usage  on  the  continent.  In  Eng- 
land the  "  peers  "  of  a  crown  tenant  were  his  fellow  crown  tenants,  who 
would  normally  deliver  judgment  in  the  Curia  Regis ;  while  the  "peers" 
of  a  tenant  of  a  mesne  lord  were  the  other  freeholding  tenants  assembled 
in  the  court  baron  of  the  manor.  A  further  illustration  of  the  meanings 
conveyed  by  the  word  "peers"  to  a  medieval  mind  together  with  the 
nature  oi  judicium  parium  may  be  drawn  from  that  provision  in  John's 
charter  of  April  10, 1201,  which  provides  that  "if  a  Christian  bring  a 
complaint  against  a  Jew,  let  it  be  adjudged  by  his  peers  of  the  Jews." 
When  the  twin  phrase  per  legem  terrce  is  interpreted  by  like  standards  it 
appears  that  originally  it  "simply  required  judicial  proceedings, 
according  to  the  nature  of  the  case  ;  the  duel,  ordeal,  or  compurgation, 
in  criminal  cases,  the  duel,  witnesses,  charters,  or  recognition  in 
property  cases."  ^  The  words  appear  at  least  twice  in  Glanvill,  each 
time  apparently  in  the  technical  sense.  And  yet  it  is  equally  clear 
that  this  older  and  technical  signification  of  the  phrase,  per  legem  terrce, 
was  gradually  forgotten  as  the  term  "law  of  the  land  "  ripened  into 
the  wider  meaning  expressed  by  it  in  the  popular  speech  of  to-day. 
The  wider  meaning  clearly  appears  in  the  statutes  reaffirming,  ex- 
panding, or  explaining  the  Great  Charter.  The  important  series  of 
such  statutes  passed  in  the  reigns  of  Edward  III  and  Richard  II 
illustrate  how  the  per  legem  terrce  of  1215  was  read  in  the  fourteenth 
century  as  equivalent  to  the  wider  phrase  "by  due  process  of  law." 
When  we  remember  that,  by  that  time,  the  jury  system,  grand  and 
petit,  had  developed,  it  is  not  strange  that  the  act  of  1352,  for  example, 
after  reciting  the  charter  provision  in  question,  insisted  on  the  necessity 
of  "indictment  or  presentment  of  good  and  lawful  people  of  the  same 
neighborhood  where  such  deeds  be  done."     Evidently  founding  his 

'  Bigelow,  History  of  Procedure,  i55«. 


330  COMMISSIONS   AND   BOARDS 

exposition  on  these  fourteenth  century  statutes  Coke^  makes  ^' per 
legem  terrcs"  of  the  Charter  equivalent  to  "by  due  process  of  law," 
and  that  again  to  "by  indictment  or  presentment  of  good  and  lawful 
men."  Thus  by  a  nunc  pro  tunc  process  of  statutory  interpretation 
Magna  Charta  was  made  to  enshrine  the  jury  system  which  did  not 
exist  at  the  time  of  its  execution.  A  master  of  the  subject  has  told  us 
that  "The  Framers  of  the  Petition  of  Right  read  the  same  words  (per 
legem  terrce)  as  a  prohibition,  not  only  of  imprisonment  'without  any 
cause  showed'  but  also  of  proceedings  under  martial  law,  thus  inter- 
preting the  aims  of  King  John's  opponents  in  the  light  of  the  misdeeds 
of  King  Charles,  and  applying  to  the  rude  system  established  by  Henry 
of  Anjou  reforms  more  appropriate  to  the  highly  developed  adminis- 
tration of  the  Tudors."  ^  By  such  a  process  of  statutory  and  popular 
interpretation  the  Charter  provision  in  question  was  widened  until 
it  became  usual  to  read  it  as  containing  an  original  promise  of  trial  by 
jury  to  all  Englishmen  ;  as  absolutely  prohibiting  arbitrary  commit- 
ment ;  and  as  undertaking  solemnly  to  dispense  a  full,  free,  speedy, 
and  equal  justice  to  all.  To  state  the  final  outcome  of  such  a  method 
of  interpretation  in  the  words  of  Hallam :  "It  protected  every  indi- 
vidual of  the  nation  in  the  free  enjoyment  of  his  life,  his  liberty,  and 
his  property,  unless  declared  to  be  forfeited  by  the  judgment  of  his 
peers  or  the  law  of  the  land."  ^  Or,  if  we  adopt  the  words  of  Creasy : 
"The  ultimate  effect  of  this  charter  was  to  give  and  guarantee  full 
protection  for  person  and  property  to  every  human  being  that  breathes 
English  air."  ^  Such  was  the  process  of  evolution  through  which  came 
into  being  the  popular  and  traditional  construction  of  that  clause  in 
the  Great  Charter  which,  in  the  widest  terms,  is  taken  as  a  promise  of 
law  and  liberty,  and  good  government  to  every  one ;  a  promise  upon 
v/hich  rests  the  supremacy  of  the  law  over  the  functionary  which  no 
one  has  ever  attempted  to  transplant  from  the  soil  inhabited  by  Angli- 
can peoples. 

When  the  English  colonies  in  America  were  formed  English  law  was 
made  the  basis  of  Colonial  rights.  In  the  famous  charter  granted  by 
James  I,  in  1666,  it  was  expressly  pro\ided  "that  all  and  every  the 
persons,  being  our  subjects  which  shall  go  and  inhabit  within  the  said 
colony  and  plantation,  and  every  their  children  and  posterity,  which 
shall  happen  to  be  born  within  the  limits  thereof,  shall  have  and  enjoy 
all  liberties,  franchises,  and  immunities  of  free  denizens  and  natural 
subjects  within  any  of  our  other  dominions,  to  all  intents  and  purposes 
as  if  they  had  been  abiding  and  born  within  this  our  realm  of  England, 
or  in  any  other  of  our  dominions."  ^  When  the  tie  which  bound  the 
colonies  to  the  mother  country  was  severed  they  rapidly  developed  into 

1  Second  Institute,  p.  46.  ^  Middle  Ages,  Vol.  II,  p.  448. 

2  McKechnie,  Magna  Charta,  p.  442.  *  Eng.  Const.,  p.  ism. 

^  Charters  and  Consts.,  part  ii,  p.  1891. 


COMMISSIONS   AND   BOARDS  331 

a  group  of  independent  commonwealths  in  which  each  individual 
member  was,  in  its  organic  structure,  a  substantial  reproduction  of  the 
English  kingdom.  The  foundation  of  the  entire  fabric  was  English 
law ;  the  provisions  of  the  Great  Charter  became  the  substructure  of 
every  state  constitution.  When  the  first  ten  amendments  were  added 
as  a  Bill  of  Rights  to  our  federal  Constitution,  in  the  fifth  was  embodied 
the  traditional  construction  of  that  part  of  the  Great  Charter  which 
guarantees  the  supremacy  of  the  law,  or,  as  we  usually  express  it,  due 
process  of  law.  In  a  line  of  cases  extending  from  United  States  vs. 
Peters,  5  Cranch  115,  the  Supreme  Court  has  given  a  most  elaborate 
exposition  of  the  doctrine  which  declares  that  here,  as  in  the  mother 
country,  every  official,  from  the  President  of  the  United  States  down 
to  a  tax  collector,  is  under  the  same  responsibility  for  every  act  done 
without  legal  justification  as  any  other  citizen  ;  and  that  the  legality  of 
any  such  act  when  assailed  may  be  tested  in  the  ordinary  tribunals 
under  the  law  of  the  land.  The  most  notable,  however,  of  all  of  these 
cases  is  that  of  United  States  vs.  Lee,  106  U.S.  p.  169,  in  which  Mr. 
Justice  Miller,  —  in  my  humble  judgment  the  greatest  expounder  of 
the  Constitution  since  Chief  Justice  Marshall,  —  in  speaking  for  the 
Court  said :  "In  such  cases  there  is  no  safety  for  the  citizen,  except  in 
the  protection  of  the  judicial  tribunals,  for  rights  which  have  been  in- 
vaded by  officers  of  the  government  professing  to  act  in  its  name.  .  .  . 
What  is  that  right  as  established  by  the  verdict  of  the  jur}'  in  this  case? 
It  is  the  right  to  the  possession  of  the  homestead  of  plaintiff.  A  right 
to  recover  that  which  has  been  taken  from  him  by  force  and  violence, 
and  detained  by  the  strong  hand.  This  right  being  clearly  established, 
we  are  told  that  the  court  can  proceed  no  further  because  it  appears 
that  certain  military  officers,  acting  under  the  orders  of  the  President, 
have  seized  this  estate  and  converted  one  part  of  it  into  a  military  fort 
and  another  into  a  cemetery.  It  is  not  pretended,  as  the  case  now 
stands,  that  the  President  had' any  lawful  authority  to  do  this,  or  that 
the  legislative  body  could  give  him  any  such  authority  except  upon 
payment  of  just  compensation.  The  defense  stands  here  solely  upon 
the  absolute  immunity  from  judicial  inquiry  of  every  one  who  asserts 
authority  from  the  executive  branch  of  the  government,  however 
clear  it  may  be  made  that  the  executive  possessed  no  such  power. 
Not  only  no  such  power  is  given,  but  it  is  absolutely  prohibited, 
both  to  the  executive  and  the  legislative,  to  deprive  any  one  of  life, 
liberty,  or  property  without  due  process  of  law,  or  to  take  private  prop- 
erty without  just  compensation.  .  .  .  No  man  in  this  country  is  so 
high  that  he  is  above  the  law.  No  officer  of  the  law  may  set  that  law 
at  defiance  with  impunity.  All  the  officers  of  the  government,  from 
the  highest  to  the  lowest,  are  creatures  of  the  law,  and  are  bound  to 
obey  it.  It  is  the  only  supreme  power  in  our  system  of  government, 
and  every  man  who  by  accepting  office  participates  in  its  functions  is 


332  COMMISSIONS  AND   BOARDS 

only  the  more  strongly  bound  to  submit  to  that  supremacy,  and  to 
observe  the  limitations  which  it  imposes  upon  the  exercise  of  the  au- 
thority which  it  gives."  I  cannot  doubt  that  these  golden  sentences, 
whose  lightest  words  are  weighty,  will  stand  forth  for  all  time  as  the 
profoundest  expression  ever  made  of  the  basic  principle  of  the  suprem- 
acy of  the  law  peculiar  to  lands  inhabited  by  Anglican  peoples. 
When  we  consider  that  the  subject-matter  of  the  suit  in  question  was 
the  ancestral  estate  of  the  vanquished  chief  of  a  fallen  cause,  an  estate 
which  for  years  had  been  held  by  the  government  of  the  victors  as  a 
resting-place  for  its  dead,  it  is  impossible  to  overestimate  the  moral 
grandeur  of  the  judgment  which  gave  it  back  with  the  ashes  of  the 
dead  because,  in  the  midst  of  civil  war,  it  had  not  been  taken  away 
according  to  the  law  of  the  land.  Is  it  going  too  far  to  say  that  the 
five  who  joined  in  that  judgment  —  Miller,  Field,  Harlan,  Matthews, 
and  Blatchford  —  are  entitled  to  be  ranked  among  the  ideal  jurists  of 
the  world?  The  four  who  dissented  from  that  judgment  recorded,  in 
clear  and  emphatic  terms,  their  willingness  to  establish  here  the  prin- 
ciple of  the  droit  administratif  as  it  exists  in  the  continental  nations. 
As  stated  heretofore,  the  essence  of  that  administrative  law  is  the  right 
of  the  ofificial,  when  the  legality  of  his  act  is  challenged  in  a  civil  tri- 
bunal under  the  ordinary  law  of  the  land,  to  deny  its  jurisdiction  upon 
the  ground  that  the  validity  of  such  acts  cannot  be  tested  in  that 
manner.  In  the  case  in  question  the  Attorney-General  made  that 
special  plea  in  a  suggestion,  "respectfully  insisting  that  the  court 
has  no  jurisdiction  of  the  subject  in  controversy,"  and  the  minority 
held  that  "the  court  having  no  authority  to  proceed  with  the  suit, 
the  judgment  afterwards  rendered  for  the  plaintiff  was  erroneous." 
Let  us  not  exaggerate  the  apparent  danger  that  existed  when  we 
remember  that  the  alien  principle  set  up  by  the  minority  failed  to 
triumph  by  only  a  single  vote.  If  that  vote  had  been  forthcoming 
and  a  contrary  doctrine  had  been  announced  in  that  particular  case 
it  would  have  lived  only  for  a  moment.  Such  an  exotic,  so  contrary 
to  the  spirit  of  our  institutions,  could  never  have  taken  root  in  a  land 
dominated  by  Anglican  law  whose  basic  principles  have  been  slowly 
maturing  during  a  period  of  a  thousand  years. 

REGULATION  BY   COMMISSION 
By  Samuel  O.  Dunn,  Editor  of  the  Railway  Age  Gazette 

(From  the  North  American  Review,  February,  1914) 

The  spread  of  regulation  of  business  by  administrative  commissions 
is  one  of  the  most  marked  and  important  politico- economic  develop- 
ments in  the  United  States  in  this  generation.     The  policy  was  first 


COMMISSIONS  AND   BOARDS  333 

applied  by  a  few  States  to  railways.  It  has  now  been  adopted  as  to 
railways  by  the  Nation  and  most  of  the  States,  and  has  been  extended 
by  several  States  to  pubUc  utilities  of  many  kinds.  Recently  men 
prominent  in  business  and  pohtics  have  advocated  regulation  of 
large  industrial  concerns  by  commissions  as  a  substitute  for  their 
regulation,  or,  rather,  dissolution,  under  the  Sherman  Act. 

The  development  of  the  policy  of  regulation  by  commission  has 
grown  out  of  the  belief  that  lawmaking  bodies,  courts,  and  ordinary 
executive  officials  are  incompetent  to  deal  with  the  problems  raised  by 
unsatisfactory  relations  between  public  utilities  and  the  public.  The 
legislatures  cannot  deal  with  these  problems  intelligently  and  effec- 
tively, because  to  do  so  requires  a  body  possessing  expert  knowledge 
and  in  practically  continuous  session.  In  both  of  these  respects 
lawmaking  bodies  are  deficient.  The  courts  cannot  satisfactorily  deal 
with  these  problems  because  they  lack  expert  knowledge  and  have 
many  other  kinds  of  business  to  transact,  and  because  their  slow,  cum- 
brous, and  formal  process  excludes  classes  of  evidence  which,  while 
logically  irrelevant  to  a  lawsuit,  are  precisely  the  considerations  that 
would  influence  a  business  man  in  deciding  a  business  proposition. 
The  ordinary  executive  or  law-enforcing  ofl&cials  are  incompetent 
to  deal  with  the  problems  of  regulation  because  they  lack  expert  knowl- 
edge, because  they  have  other  and  entirely  differing  duties  to  perform, 
and  because  a  regulating  body  should  approach  its  work  in  a  judicial 
spirit  which  is  incompatible  with  the  executive  spirit  by  which  the 
ordinary  law-enforcing  officials  should  be  animated. 

It  long  seemed  that  we  must  accept  either  unregulated  management 
of  public  utilities,  wdth  its  attendant  abuses ;  or  unwise  and  inefficient 
regulation  by  the  courts  and  legislatures;  or  public  ownership. 
It  was  out  of  this  confused  condition  of  affairs  that  there  grew  up  the 
idea  of  creating  commissions  having  at  once  legislative,  judicial,  and 
administrative  functions,  and  especially  qualified  and  empowered  to 
deal  solely  with  this  problem  of  public  regulation. 

Many  persons  regard  the  development  of  the  regulating  commission 
with  much  enthusiasm  and  optimism.  They  consider  it  a  great  dis- 
covery in  political  science,  and  think  it  the  best  if  not  the  only  means  by 
which  we  can  steer  clear  of  both  the  Scylla  of  uncontrolled  and  ra- 
pacious private  management  and  the  Charybdis  of  public  ownership. 
The  principle  underlpng  regulation  of  public  utilities  by  commission 
is  sound.  But  sound  principles  are  valueless  without  sound  practice. 
Whether  our  practice  will  be  sound  will  depend  mainly  on  two  things 
—  the  personnel  of  the  commission,  and  their  legal  powers. 

We  have  recently  given  much  attention  to  their  powers.  W^e  have 
conferred  on  many  of  them  very  great  authority.  We  have  given  much 
less  attention  to  the  question  of  the  kind  of  men  who  should  exercise 
this  authority.     But  in  all  political  and  business  affairs  the  kind  of 


334  COMMISSIONS  AND   BOARDS 

men  to  whom  authority  is  intrusted  is  as  important  as  the  amount  and 
character  of  the  authority  conferred.  Capable,  public-spirited  men 
will  accomplish  much  more  good  with  small  powers  than  incapable, 
self-seeking  men  with  large  powers.  In  truth,  the  greater  the  powers 
you  give  incompetency,  especially  if  it  be  associated  with  selfish  am- 
bition, the  less  is  the  good  and  the  greater  the  evil  it  will  usually  do. 

The  disqualifications  of  legislatures,  courts,  and  ordinary  executive 
officials  for  the  regulation  of  business  suggest  some  of  the  c[ualiiications 
that  ought  to  be  possessed  by  the  members  of  regulating  commissions. 
Ability,  expert  knowledge,  fairness  in  utterance  and  act,  moral  courage 
to  resist  public  opinion  when  it  is  wrong,  as  well  as  to  enforce  their 
duty  on  refractory  public  utility  managements  when  they  are  wrong  — 
these  are  prime  essentials.  While  some  members  of  our  regulating 
commissions  have  had  the  needful  qualifications  in  a  high  degree,  many 
of  them  have  hardly  had  them  at  all.  In  more  cases  State  commis- 
sioners have  been  elected  chiefly  because,  as  politicians  and  lawyers, 
they  have  participated  in  agitation  and  litigation  against  the  railways. 
Such  men  can  hardly  be  unbiased.  Most  of  the  commissioners  have 
been  wanting  in  expert  knowledge ;  many  have  been  without  business 
capacity  or  professional  attainments  and  ignorant  of  elementary 
economic  principles. 

By  what  means  may  we  more  generally  secure  for  the  commissions 
the  sort  of  men  of  which  they  ought  to  be  composed?  First,  we  must 
pay  their  members  reasonable  salaries.  We  may  get  able  men  to  serve 
temporarily  in  emergencies  for  inadequate  pay ;  but  we  cannot  long 
retain  capable  men  in  the  public  service  for  small  compensation. 
The  salaries  now  paid  are  usually  too  low.  In  New  York  the  salary 
is  fifteen  thousand  dollars  a  year,  which  certainly  ought  to  be  ample 
even  there.  In  a  very  few  States  it  is  five  thousand  dollars,  or  a  little 
more.  In  most  of  them  it  is  less  than  this ;  in  some  only  twelve  hun- 
dred to  fifteen  hundred  dollars.  It  is  impossible  to  believe  that  in  a 
large  and  important  State  competent  men  can  be  induced  to  sit  long 
on  a  commission  for  less  than  five  thousand  dollars  to  ten  thousand 
dollars.  The  members  of  the  Interstate  Commerce  Commission  are 
paid  ten  thousand  dollars.  In  view  of  the  high  qualifications  they 
should  possess  and  the  laboriousness  and  extreme  importance  of  their 
duties  they  should  be  paid  more. 

Secondly,  the  kind  of  men  chosen  depends  largely  on  the  mode  of 
choice.  Reason  would  suggest,  and  experience  shows,  that  qualified 
men  are  more  apt  to  be  secured  by  appointment  than  election.  Occa- 
sionally capable  men  are  elected;  and  frequently  unfit  men  are 
appointed;  but  on  the  whole  the  appointive  commissions  are  su- 
perior in  personnel  to  the  elective.  The  voters  have  both  less  fit- 
ness and  less  opportunity  to  select  good  men  than  the  Governor  of 
a  State  or  the  President  of  the  United  States.     Almost  every  one  of 


COMMISSIONS  AND   BOARDS  335 

the  shining  examples  of  wholly  unfit  commissioners  is  a  product  of 
election. 

Third,  the  term  of  office  should  be  fairly  long  —  certainly  not  less 
than  four  years,  and   preferably  longer.     The  duties    are  not  only 
technical,  but  they  relate  to  a  diversity  of  subjects.     Railway  commis- 
sions now  regulate  railway  traffic,  operation,  and  accounting,  and  in 
some  States  the  issuance  of  securities.     On  railways  only  the  higher 
executi\^e  officers  usually  have  a  working  knowledge  of  all  the  various 
departments,  and  most  students  of  railway  matters  outside  of  railway 
service  specialize  along  only  one  or  a  few  lines.     Therefore,  a  new 
commissioner,  even  though  formerly  a  railway  officer  or  a  diligent 
student  of  railway  affairs,  is  apt  to  have  a  knowledge  of  only  one  or  a 
few  branches  of  the  railway  business.     As  commissions  deal  with  all 
branches  of  the  business,  their  members  must,  if  they  are  to  perform 
all  their  duties  fairly  and  intelligently,  be  given  long  terms  so  that 
they  may  acquire  the  broad  knowledge  and  experience  that  the  per- 
formance of  all  their  duties  requires.     The  members  of  the  Interstate 
Commerce  Commission  are  appointed  for  seven  years,  and  we  seem 
now  to  have  definitely  adopted  the  wise  practice  of  repeatedly  re- 
appointing those  who  desire  reappointment.     The  terms  of  the  mem- 
bers of  most  State  commissions  are  very  short ;  and  there  are  frequent 
changes  in  them.     When  commissions  regulate  not  only  railways  but 
all  kinds  of  public  utilities,  the  need  for  appointing  their  members  for 
long  terms,  and  profiting  by  their  experience  by  repeated  reappoint- 
ments, is  much  greater  than  when  they  regulate  only^  railways.     There 
is  a  general  tendency  to  thus  extend  the  jurisdiction  of  commissions 
originally  created  to  regulate  railways  only. 

Finally,  the  commissioners  should  be  possessed  when  they  are  chosen 
of  special  knowledge  of  the  businesses  they  are  to  regulate.  There  is 
a  feeling  that  officers  of  railways,  the  most  important  utilities  subjected 
to  regulation,  would,  if  chosen  to  commissions,  be  somewhat  biased  in 
favor  of  the  railways.  That  probably  would  be  true  in  some  cases. 
But  surely  they  are  no  more  apt  to  be  biased  in  favor  of  railways  than 
shippers  or  politicians  who  have  participated  in  agitations  against 
them  are  apt  to  be  biased  against  them ;  and  it  is  hard  to  see  in  what 
way  the  one  kind  of  bias  is  any  better  or  worse  than  the  other. 

However,  it  is  not  necessary  to  go  to  the  public  utilities  themselves 
for  men  having  some  special  qualifications  for  commissioners.  In 
Germany,  the  "land  of  damned  professors,"  as  Palmerston  called  it, 
the  government  has  learned  to  make  good  use  in  public  affairs  of 
earnest  and  intelligent  students.  No  one  questions  that  B.  H.  Meyer 
is  one  of  the  fairest,  ablest,  and  best- equipped  members  of  the  Inter- 
state Commerce  Commission.  Mr.  Meyer  formerly  served  on  the 
Wisconsin  Commission,  and  before  that  was  a  professor  in  the  Uni- 
versity of  Wisconsin,  where  he  specialized  on  transportation. 


336  COMMISSIONS   AND   BOARDS 

It  is  not  meant  to  suggest  that  we  should  fill  our  commissions  with 
university  professors,  but  merely  that  our  commissions  would  be  much 
strengthened  and  our  policy  of  regulation  much  improved  if  we  would 
put  fewer  politicians  on  them,  and  more  men,  such  as  Mr.  Meyer, 
who  have  devoted  themselves  to  the  study  of  the  problem  with  which 
regulating  bodies  must  deal.  Unfortunately,  we  have  never  had 
much  use  in  public  affairs  in  this  country  for  the  man  who  prefers  in- 
vestigation to  guessing  and  meditation  to  agitation. 

President  Hadley,  one  of  the  earliest  and  greatest  of  academic 
students  of  transportation  in  the  United  States,  years  ago  pointed  out 
that  a  railway  commission  having  the  right  sort  of  personnel  does  not 
need  to  possess  or  exercise  extensive  coercive  legal  powers  in  order  to 
be  an  effective  regulating  body.  The  Massachusetts  Railroad  Com- 
mission has  never  possessed  extensive  legal  powers  ;  yet  no  commission 
ever  has  done  work  at  once  more  effective  and  salutary  than  the  Massa- 
chusetts Commission  did  in  its  early  history.  This  was  because  it  was 
dominated  by  Charles  Francis  Adams,  a  man  having  in  eminent  degree 
all  the  qualifications  of  a  great  public  utility  commissioner.  As  Dr. 
Hadley  has  said  :  "This  absence  of  specific  powers  was  just  what  Mr, 
Adams  welcomed.  It  threw  the  commission  back  on  the  power  of 
common  sense  —  which  does  not  seem  as  strong  as  statutory  power  to 
prosecute  people  and  put  them  in  prison,  but  which  in  the  hands  of  a 
man  who  possesses  it  is  actually  very  much  stronger."  The  great 
influence  that  a  commission  may  exert  while  possessing  very  limited 
statutory  powers  is  illustrated  by  the  fact  that  in  the  long  life  of  the 
Massachusetts  Commission  the  railways  have  failed  to  act  in  accord- 
ance with  a  formal  recommendation  made  by  it  in  only  a  single  unim- 
portant instance. 

However,  I  am  not  one  of  those  who  now  believe  in  what  are  called 
"weak"  commissions.  I  believe  in  strong  commissions  —  strong  in 
personnel,  and  strong  in  the  power  to  compel  the  managements  of 
public  utilities  to  do  what  they  should  when  compulsion  is  necessary. 
Compulsion  would  be  necessary  less  frequently  if  our  commissions 
were  uniformly  fair  and  expert ;  but  that  it  is  often  necessary  there 
is  no  doubt.  But,  as  the  Supreme  Court  of  the  United  States  said 
in  one  case,  "the  public  is  not  a  general  manager  of  the  railways" ; 
nor  is  it  a  general  manager  of  other  public  utilities.  Public  utilities 
are  not  public  property  with  which  the  public  may  legally  or  equitably 
do  as  it  pleases.  The  public  may  become  their  general  manager  by 
becoming  their  owner ;  but  it  has  no  right  to  assert  the  authority  of 
management  until  it  is  prepared  to  assume  the  responsibility  and  bear 
the  expenses  of  management  and  ownership.  Not  only  has  it  no  right 
to  do  so,  but  for  it  to  do  so  would  be  highly  inexpedient.  Public 
management  of  public  utilities  under  public  ownership  might  succeed. 
Public  regulation  of  private  property  may  succeed.     Public  manage- 


COMMISSIONS  AND   BOARDS  337 

ment  of  priv^ate  property  could  not  succeed.  It  would  involve  divided 
responsibility  in  its  worst  form.  There  would  be  incessant  struggles 
between  the  officers  selected  to  represent  the  owners,  seeking  to 
recover  the  authority  they  had  lost,  and  the  authorities  representing 
the  public,  seeking  to  hold  the  authority  they  had  gained.  Each 
side  would  exert  itself  more  to  nullify  the  work  of  the  other  than  by  its 
own  policy  to  get  results.  The  capital  needed  for  adequate  develop- 
ment would  not  be  forthcoming  ;  for  the  public  could  not  lay  it  out  so 
long  as  the  ownership  was  private,  and  private  capitalists  would  not  — • 
probably  could  not  —  supply  it  while  the  management  was  public. 
The  resulting  conditions  would  be  intolerable,  and  both  the  owners  of 
the  utilities  and  the  public  might  throw  themselves  into  the  arms  of 
government  ownership  as  the  only  haven  of  escape. 

Where,  then,  does  the  proper  jurisdiction  of  the  management  end, 
and  that  of  the  regulating  commission  begin  ?  We  shall  most  ac- 
curately trace  the  line  of  demarcation  if  we  consider  the  precise  nature 
of  a  public  utility.  A  public  utility  has  been  defined  by  the  courts 
as  private  property  affected  with  a  public  use.  The  same  meaning 
has  been  conveyed  when  it  has  been  said  that  a  public  utility  is  private 
property  devoted  to  a  public  service.  The  property  is  as  private  in 
its  ownership  as  a  farm  or  store  or  factory.  It  is  the  fact  that  it  is 
devoted  to  the  service  of  the  public  that  gives  the  public  a  right  to 
regulate  it.  There  are  w^ater  plants,  electric  light  and  power  plants, 
gas  plants,  and  small  railroads  that  are  private  not  only  in  their  owner- 
ship, but  also  in  their  service ;  and  the  public  has  no  more  right  or 
power  to  regulate  them  than  any  other  strictly  private  business.  It 
is  when,  and  because,  property  is  devoted  to  the  service  of  the  public, 
and  that  thereby  there  is  established  a  most  important  relation  between 
its  owners  and  managers  and  the  public,  that  the  right  and  power  of 
the  public  to  regulate  emerges.  Continuing  to  be  private  in  its  owner- 
ship, its  owners  retain  both  the  moral  and  the  legal  right  to  manage  it 
as  they  see  fit  so  long  as  it  renders  good  service  to  the  public  at  reason- 
able rates.  It  remains  the  province  of  the  management  to  perform 
in  the  first  instance  all  the  functions  performed  by  the  management 
of  any  business  concern  —  to  fix  the  rates  to  be  charged,  to  determine 
the  amount  and  character  of  the  service  to  be  rendered,  and  to  decide 
how  the  company's  financial  necessities  shall  be  provided  for.  And 
if  the  rates  fixed  are  all  fair  and  reasonable,  if  the  service  rendered  is 
adequate  and  good,  if  the  financing  is  honest  and  conservative,  there 
is  nothing  for  any  regulating  body  to  do. 

But  experience  has  shown  that  the  managers  of  public  utilities, 
being  human,  are  just  as  good  and  just  as  bad  as  the  rest  of  mankind. 
There  are  farmers  who  put  all  the  large  apples  at  the  top  of  the  barrel, 
and  sell  impure  milk  to  poison  little  children.  There  are  merchants 
who  sell  short  weight.     There  are  manufacturers  who  underclassify 


338  COMMISSIONS  AND   BOARDS 

the  goods  they  ship  and  thereby  rob  the  railways.  And  there  are  some 
managers  of  public  utilities  who,  having  the  same  human  shortcomings 
as  some  farmers,  some  merchants,  and  some  manufacturers,  seek  to 
exact  excessive  rates,  to  discriminate  unfairly  in  their  charges,  and  to 
render  service  that  is  poor  and  inadequate.  It  is  to  stop  and  prevent 
these  abuses  that  regulating  bodies  are  created. 

In  brief,  the  proper  function  of  the  management  is  executive  in  the 
broadest  sense ;  that  of  the  regulating  commission  corrective.  This  is 
the  only  rational  and  practical  view  of  the  matter.  For  no  commission 
exercising  regulating  authority  over  numerous  utilities  can  possibly 
accjuire  that  intimate  knowledge  of  all  the  conditions  and  needs  of 
the  business  of  each  of  them  which  their  managers  have,  and  which  is 
essential  to  their  wise  and  efficient  management ;  and,  therefore, 
when  the  commission  oversteps  the  limits  of  its  appropriate  field 
its  influence  ceases  to  be  intelligent  and  corrective,  and  begins  to  be 
ignorant,  meddlesome,  and  harmful. 

There  are  several  important  phases  of  the  business  of  public  utilities 
to  which  the  corrective  authority  of  the  regulating  commission  may, 
should,  and  in  many  cases  does,  apply.  Practically  all  commissions 
have  considerable,  and  many  large,  authority  over  rate-making. 
Many  persons  think  commissions  should  have  authority  to  initiate 
all  rates.  But,  in  the  railway  business  at  least,  the  initiation  of  rates 
is  plainly  a  function  of  management.  No  commission  can  possibly 
know  so  well  what  the  rates  as  a  whole  can  and  ought  to  be  made  as 
the  traffic  men  of  the  railways.  But  the  judgment  of  the  traffic  men 
at  times  goes  wrong ;  they  are  at  times  influenced  by  considerations 
out  of  harmony  with  the  rights  and  interests  of  the  public ;  and  com- 
missions ought  to  have  the  power,  after  full  investigation,  to  order 
needed  changes  in  the  specific  rates  or  schedules  of  rates  which  they 
have  investigated.  Their  authority  should  include  the  raising  as 
well  as  the  reducing  of  rates,  for  often  an  unfair  discrimination  may 
better  be  corrected  by  raising  a  rate  that  is  too  low  than  by  reducing 
one  that  is  too  high.  The  Interstate  Commerce  Commission  has  not 
power  to  raise  a  rate ;  but  some  of  its  principal  members,  and  perhaps 
all  of  them,  believe  it  ought  to  have  that  power. 

Commissions  often  have  been  given  less  authority  over  physical 
operation  than  over  rate-making.  There  seems  no  sound  ground  for 
this.  There  appears  no  good  reason  why  they  should  not  have  the 
same  authority,  after  full  investigation,  to  issue  orders  to  correct  de- 
fects of  service  as  defects  in  the  rate  structure.  Congress  and  the 
State  legislatures  have  been  passing  numerous  laws  to  regulate  the 
hours  of  service  of  railway  employees,  the  number  of  men  in  railway 
train  crews,  the  kind  of  headlights  that  shall  be  used  on  locomotives, 
etc.  There  is  just  as  much  reason  why  matters  such  as  these  should 
not  be  regulated  by  legislatures  and  why  they  should  be  regulated  by 


COMMISSIONS   AND   BOARDS  339 

public-utility  commissions  as  there  is  why  rates  should  be  regulated  by 
the  commissions.  Regulation  of  operation,  to  be  fair  and  beneficial, 
requires  just  as  thorough  investigation,  just  as  much  impartiality, 
and  just  as  much  expert  knowledge  as  regulation  of  rates.  Most  of 
the  laws  for  regulation  of  railway  operation  that  have  been  passed 
recently,  such  as  full-crew  laws,  and  laws  to  regulate  the  length  of 
freight  trains,  have  been  passed  in  the  name  of  safety.  But  many  of 
them  do  not  seem  intended  to  promote  safety,  and  are  not  adapted  to 
save  a  single  limb  or  life.  They  increase  the  number  of  men  that 
railways  must  employ ;  and  their  only  effect,  so  far  as  the  public  is 
concerned,  is  to  tend  to  increase  the  cost  of  transportation.  The 
lawmakers  have  passed  many  of  them  either  ignorantly  or  to  win  votes. 
A  lawmaker  who  permits  himself  to  be  bribed  with  the  votes  of  labor 
is  not  a  whit  better  than  one  who  permits  himself  to  be  bribed  with 
the  money  of  capital. 

One  of  the  most  important  matters  with  which  public  regulation 
should  deal  is  the  relations  between  railways  and  other  public  utilities 
and  their  employees.  The  Federal  Erdman  Act,  as  recently  amended 
by  the  Newlands  Act,  creates  a  mediation  board  of  three  members 
whose  duty  it  is,  when  a  strike  or  a  lockout  of  employees  concerned 
with  the  operation  of  trains  is  threatened  on  railways,  to  tender  their 
good  offices  to  prevent  a  rupture.  If  mediation  fails,  the  law  pro\-ides 
for  voluntary  arbitration  by  a  board  composed  of  two  representatives 
of  the  railways,  two  representatives  of  the  employees,  and  two  repre- 
sentatives of  the  public.  While  arbitration  under  the  act  is  voluntary, 
proceedings  may  be  brought  in  a  court  of  equity  to  enforce  the  award. 
This  law  is  an  improvement  over  the  original  Erdman  Act ;  but  it  is 
very  defective  in  some  important  respects.  The  controversy  between 
the  Eastern  railways  and  their  engineers  last  year  was  submitted  to 
arbitration  by  a  board  composed  of  five  eminent  and  disinterested  citi- 
zens —  Oscar  S.  Straus,  of  New  York  ;  Charles  R.  Van  Hise,  president 
of  the  University  of  Wisconsin ;  Frederick  N.  Judson,  of  St.  Louis ; 
Albert  Shaw,  editor  of  the  Review  of  Revien's ;  and  Otto  INI.  Eidlitz,  for- 
mer president  of  the  Building  Trades  Association  of  New  York  —  and 
one  representative  of  the  railways,  Daniel  Willard,  president  of  the  Bal- 
timore &  Ohio  ;  and  one  representative  of  the  employees,  P.  H.  Morris- 
sey,  formerly  head  of  the  Brotherhood  of  Railroad  Trainmen.  This 
board,  after  a  thorough  investigation,  fully  discussed  in  its  report  the 
railway  labor  situation  and  recommended  certain  important  legislation. 
Recognizing  the  great  harm  to  the  public  that  would  be  caused  by  a 
tie-up  of  the  railways  and  the  equal  or  greater  harm  that  would  result 
from  a  long  series  of  unreasonable  and  unjust  settlements  of  labor  con- 
troversies, the  board  recommended  the  creation  of  national  and  State 
wage  commissions  and  the  prohibition  of  strikes  and  lockouts  until 
after  arbitration.     Strikes  and  lockouts  on  public  utilities  should,  in 


340  COMMISSIONS  AND   BOARDS 

the  interest  of  the  public  welfare,  be  prohibited  until  after  arbitration, 
at  least ;  and  each  arbitration  board  should  contain  a  dear  majority 
of  representatives  of  the  public.  There  seems  no  very  good  reason  why 
differences  between  public  utilities  and  their  employees  should  not 
be  settled  by  the  usual  regulating  commissions.  They  arbitrate  differ- 
ences between  shippers  and  railways  as  to  how  much  the  shippers 
shall  pay  the  railways.  Why  should  they  not  also  arbitrate  differences 
between  the  railways  and  their  employees  as  to  how  much  the  railways 
shall  pay  the  employees  ?  Is  it  not  best  that  the  same  body  shall  look 
at  both  sides  of  the  ledger  —  that  the  body  that  regulates  the  income 
of  public  utilities  shall  also  regulate  their  outgo? 

Regulation  by  commission  often  extends  to  the  finances  of  public 
utilities,  relating  to  the  issuance  of  securities  by  them  or  to  the  profits 
they  are  permitted  to  earn,  or  to  both.  The  most  thorough  and  expert 
investigation  of  the  subject  of  regulation  of  security  issues  ever  made 
was  that  by  the  Railroad  Securities  Commission,  of  which  President 
Had  ley  of  Yale  was  chairman,  and  which  rendered  its  report  in  191 1. 
That  commission  expressed  the  opinion  "that  it  is  far  more  important 
to  ascertain  just  what  are  the  facts  concerning  the  issue  of  securities 
and  what  is  actually  done  with  whatever  money  has  in  fact  been 
realized  from  the  stock  which  is  issued,  than  merely  to  make  sure 
that  the  par  value  of  the  stock  was  paid  in  at  the  time  of  issue."  It 
is  said  that  if  railway  rates  were  materially  influenced  by  the  amount 
of  the  outstanding  securities  it  would  be  desirable  for  securities  to  be 
issued  under  governmental  regulation,  but  it  is  believed  ''  that  the 
amount  and  face  value  of  outstanding  securities  has  only  an  indirect 
influence  on  the  making  of  rates,  and  that  it  should  have  little,  if 
any,  weight  in  their  regulation.  ...  If  railroad  securities  were  to 
be  issued  only  after  express  authorization  of  each  particular  issue  by 
the  Interstate  Commerce  Commission  or  other  governmental  agency, 
it  is  difficult  to  see  how  the  government  could  thereafer  escape  the 
moral,  if  not  the  legal,  obligation  to  recognize  these  securities  in  the 
regulation  of  railroad  rates.  .  .  .  The  possible  consequences  of  such 
a  system  are  too  serious  to  warrant  its  adoption  at  the  present  time." 
The  Commission  therefore  confined  itself  to  recommending  legislation 
to  require  each  railway  to  file  with  the  Interstate  Commerce  Commis- 
sion prior  to  the  date  of  issuance  of  any  securities,  a  full  statement  of 
their  character  and  amount ;  to  furnish  to  the  Commission,  at  such 
times  as  it  may  require,  full  statements  of  its  financial  transactions 
which  the  Commission  may  make  public  at  its  discretion  ;  and  to  com- 
pile, for  the  information  of  its  stockholders,  such  information  and  in 
such  form  as  the  Commission  may  require  regarding  its  financial  trans- 
actions during  the  fiscal  year,  and  any  interests  that  its  directors 
may  have  in  any  transaction  under  investigation. 

These  are  eminently  wise  recommendations ;    but  they  have  not 


COMMISSIONS  AND   BOARDS  341 

been  acted  on  by  Congress,  which  seems  Hkely  to  pass  more  radical 
legislation  —  legislation  which  will  be  less  wise  in  proportion  as  it  is 
more  radical.  The  purpose  of  regulation  of  security  issues  is  to 
prevent  over-capitalization  of  railways,  with  the  evils  attributed  to  it, 
some  of  them  very  real  and  some  fanciful.  But  before  we  attempt  to 
prevent  over-capitalization  it  might  be  well  to  decide  what  it  is ;  and 
few  persons  agree  on  a  definition  of  it.  A  railway  like  the  Chicago 
Great  Western,  with  a  capitalization  of  eighty- five  thousand  dollars  a 
mile ;  gross  earnings  of  eighty-five  hundred  dollars  a  mile,  net  earnings 
of  but  twenty-one  hundred  and  twenty-nine  dollars  a  mile,  and  neither 
paying  nor  earning  anything  on  its  stock,  is  obviously  overcapitalized. 
Equally  obvious  is  it  that  a  railway  like  the  Delaware,  Lackawanna 
&  Western,  with  gross  earnings  of  forty  thousand  dollars  a  mile,  net 
earnings  of  sixteen  thousand  dollars  a  mile,  a  capitalization  of  only 
thirty- three  thousand  dollars  a  mile,  and  paying  regular  dividends  of 
twenty  per  cent.,  and  frequently  extra  dividends,  is  greatly  under- 
capitalized. Its  property  could  not  be  reproduced  for  several  times 
its  capitalization.  When  we  have  such  extreme  examples  our  defini- 
tion of  over-capitalization,  and  idea  of  what  should  be  done  about  it, 
become  a  matter  of  the  point  of  view.  Do  we  mean  by  it  that  securi- 
ties have  been  issued  as  a  bonus  or  sold  at  a  discount?  That  has 
been  done,  and  it  can  be  prohibited ;  but  this  would  seriously  inter- 
fere with  the  construction  of  new,  independent  railways,  which  seldom 
can  market  any  securities  at  par  except  bonds,  and  bonds  only  when 
they  bear  a  very  high  rate  of  interest  or  a  stock  bonus  is  given  with 
them.  Do  we  mean  by  over-capitalization  security  issues  in  excess  of 
cost  ?  But  in  few  if  any  cases  do  we  know  or  can  we  ascertain  the  cost 
of  the  original  construction  of  and  the  permanent  improvements  in  our 
railways.  Do  we  mean  that  capitalization  exceeds  the  present  cost 
of  reproducing  the  railways?  Congress  has  now  provided  for  a 
valuation  of  railways  by  the  Interstate  Commerce  Commission ; 
and  perhaps  after  it  is  made  security  issues  might  be  based  on  it. 
But  it  is  practically  certain  that  if  the  cost  of  reproduction  is  given  pre- 
ponderant weight  in  the  valuation,  as  the  decisions  of  the  Supreme 
Court  indicate  it  must  be,  the  valuations  of  most  railways  and  of  the 
railways  as  a  whole  will  exceed  their  capitalization.  Would  we  then 
authorize  the  railways  whose  capitalizations  were  smaller  than  their 
valuations  to  equalize  them  by  issuing  stock  dividends  ?  This  question 
of  regulating  securities  is  much  less  simple  than  many  think  ;  and  good 
sense  dictates  that  for  the  present  we  should  follow  the  conservative 
recommendations  of  the  Hadley  Commission. 

Almost  every  time  an  order  is  issued  by  a  regulating  body  regarding 
either  rates  or  operation  net  earnings  are  more  or  less  affected.  There 
is  a  tendency  to  try  to  limit  the  profits  of  railways  and  other  utilities 
to  what  is  called  a  "fair  return"  ;  and  there  is  an  impression  that  the 


342  COMMISSIONS   AND   BOARDS 

courts  have  held  that  this  is  the  maximum  they  may  be  permitted 
to  have.  What  the  courts  have  held  is  not  that  public  utilities  may 
not  earn  more  than  a  fair  return,  but  that  they  may  not  be  restricted 
to  less.  They  have  fixed  a  minimum,  but  not  a  maximum  limit. 
What,  if  anything,  a  public  utility  may  earn  in  excess  of  the  so-called 
"fair  return,"  usually  placed  at  six  or  seven  per  cent.,  is  a  question  for 
the  regulating  body  to  determine,  and  should  be  dealt  with  by  it  as 
a  matter  of  public  expediency.  Public  expediency  dictates  that  the 
return  permitted  to  be  earned  shall  be  sufficient  to  attract  enough 
capital  into  public  utilities  to  enable  them  to  render  good  and  ade- 
quate service ;  and  that  efficient  management  shall  be  rewarded  with 
larger  returns  than  inefficient  management,  because  if  it  is  not  there 
will  soon  be  no  efficient  management. 

Once  the  public  has  created  regulating  commissions  of  satisfactory 
personnel  and  adequate  powers  it  would  seem  that  it  should  be  content 
to  let  them  proceed  with  the  performance  of  their  difficult,  delicate, 
and  arduous  duties  \Aathout  unnecessary  and  harmful  interference. 
This,  however,  has  seldom  been  done.  The  legislatures,  after  having 
created  the  commissions,  often  have  passed  laws  for  the  regulation  of 
rates  and  operation  against  the  judgment,  and  even  over  the  opposi- 
tion, of  the  commissions.  In  some  States  the  people  themselves  by 
referendum  votes  recently  have  passed  laws  to  regulate  matters 
whose  regulation  was  within  the  special  scope  of  the  commissions' 
authority.  This  is  contrary  to  sound  principles  of  regulation  by  com- 
mission. Again,  after  having  adopted  special  laws  for  the  regulation 
and  control  of  public  utilities,  we  have  applied  to  them  Federal  and 
(in  many  cases)  State  anti-trust  laws,  whose  object  is  to  enforce  com- 
petition. Now,  competition  in  rates,  in  the  ordinary  sense,  and  effec- 
tive and  w^holesome  public  regulation  are  incompatible.  You  cannot 
have  competition  m,  and  effective  regulation  of,  railway  rates  at  the 
same  time,  any  more  than  you  can  at  the  same  time  ride  two  horses 
going  rapidly  in  opposite  directions.  The  main  aim  of  regulation  of 
rates  is  to  prevent  unfair  discrimination  in  rates.  But  competition 
inevitably  leads  to  discrimination.  When  railways  compete  in  rates 
they  inevitably  compete  harder  for  the  business  of  large  shippers 
than  of  small  shippers.  That  means  secret  rates  and  rebates,  which 
are  in  violation  of  the  Interstate  Commerce  Act,  the  provisions  of 
which  the  Interstate  Commerce  Commission  exists  chiefly  to  enforce. 

The  true  theory  of  regulation  by  commission  seems  to  be  this : 
The  management  of  public  utilities  should  be  left  in  the  hands  of  the 
owners  or  those  that  they  choose  to  represent  them.  The  regulating 
commissions  should  be  made  strong  enough  m  personnel  and  statutory 
power  to  exercise  corrective  authority  over  the  managements  when 
the  acts  of  the  managements  are  unreasonable  and  unjust  to  the  public. 
And  such  commissions  having  been  created,  they  should  be  left  free 


COMMISSIONS   AND   BOARDS  343 

to  perform  their  duties  without  interference  from  the  public  or  any 
public  body  except  the  courts,  and  then  only  when  it  can  be  shown 
that  the  commissions  have  exceeded  their  constitutional  authority 
in  a  manner  plainly  unreasonable  and  unjust  to  the  concerns  over 
which  their  jurisdiction  extends.  The  success  of  regulation  probably 
will  be  in  .proportion  to  the  consistency,  fairness,  and  integrity  with 
which  we  carry  out  these  principles. 

Some  people  think  that  the  courts  should  have  no  authority  to 
review  and  set  aside  orders  of  regulating  commissions  unless  they  are 
confiscatory.  It  has  been  contended,  not  only  that  this  ought  to  be, 
but  that  it  is  the  law.  The  making  of  rates,  the  Interstate  Commerce 
Commission  said,  in  its  annual  report  for  191 1,  is  a  legislative  function. 
"That  being  so,  the  dicretionary  power  involved  in  reaching  a  con- 
clusion that  a  particular  rate  is  or  is  not  reasonable  for  the  future,  or 
that  a  particular  discrimination  is  or  is  not  undue,  is  a  legislative  dis- 
cretion which  cannot  be  reviewed  by  the  courts."  The  same  reasoning 
would  equally  limit  the  power  of  the  courts  to  review  orders  regarding 
service  and  other  matters.  The  Supreme  Court  of  the  United  States 
in  a  recent  decision  ^  has  refused  to  accept  this  theory.  It  holds  that 
such  authority  as  the  commission  has  claimed,  "  however  beneficently 
exercised  in  one  case,  could  be  injuriously  exerted  in  another ;  is 
inconsistent  with  rational  justice,  and  comes  under  the  Constitution's 
condemnation  of  all  arbitrary  exercise  of  power."  In  other  words, 
the  railway  or  other  public  utility  can  always  appeal  to  the  courts, 
not  only  to  determine  if  an  order  of  a  commission  is  confiscatory,  but 
to  determine  if  it  is  reasonable  and  based  on  substantial  evidence. 
The  courts  may  not  annul  an  order  of  a  commission  unless  it  is 
plainly  unreasonable.     But  when  it  is  so  they  must  set  it  aside. 

The  main  principle  on  which  the  Government  of  the  United 
States  rests  is  that  it  should  be  a  government  of  laws  and  not  of  men ; 
that  no  one  should  have  his  life,  liberty,  or  property  taken  without 
the  right  to  be  fully  apprised  of  the  reason  and  to  appeal  to  the  courts 
to  determine  if  the  taking  is  just.  The  doctrine  that  regulating  com- 
missions or  other  administrative  bodies  should  be  given  any  arbitrary 
power  over  public  utilities  is  simply  the  doctrine  that  the  property 
rights  of  the  owners  of  public  utilities  should  not  be  given  the  same 
protection  as  the  property  rights  of  other  persons.  It  is  a  doctrine 
that  seems  inherently  wrong  and  unjust ;  at  least  it  is  one  that  the 
Supreme  Court  has  condemned  as  unconstitutional.  On  the  other 
hand,  the  decisions  of  the  courts  leave  an  ample  field  for  administrative 
regulating  commissions  to  work  in  and  to  accomplish  all  of  the  great 
good  which,  with  a  suitable  personnel  and  large  powers,  it  is  practicable 
for  them  to  accomplish. 

1 1.  C.  C.  &  U.  S.  vs.  L.  &  N.  R.R.  Co. 


344  COMMISSIONS   AND   BOARDS 

SOME   FEATURES   OF   STATE   REGULATION   OF 
PUBLIC   UTILITIES 

By  John  H.  Roemer  of  the  Milwaukee  Bar,  Member  of  the 

Railroad  Commission  of  Wisconsin 

(From  an  Address  Delivered  before  the  Wisconsin  State  Bar  Association 
at  Milwaukee,  September  i,  1909) 

This  article  shows  the  working  of  the  Wisconsin  public  utiHties  law, 
during  the  first  two  years  of  its  operation.  —  Editor's  Note. 

The  doctrine  that  the  public  has  an  interest  in  the  use  of  the  property 
of  a  public  utility  employed  in  a  public  service,  though  resting  upon 
the  principles  of  the  common  law,  was  not  agreeable  to  the  manage- 
ments of  public  service  corporations  w^hen  state  regulation  and  super- 
vision of  such  corporations  \vere  first  proposed.  Nor  has  there  ever 
been  a  full  assent  to  this  doctrine  or  a  frank  submission  to  the  regu- 
latory measures  adopted  by  the  state  on  the  part  of  many  such  cor- 
porations. The  view  that  their  undertakings,  except  to  a  limited 
extent  in  the  case  of  common  carriers,  were  purely  private  business 
enterprises  which  could  be  conducted  upon  like  principles  as  those 
prevailing  in  other  commercial  pursuits,  controlled  the  managements 
in  the  transaction  of  all  the  affairs  of  the  corporations,  whether  per- 
taining to  their  private  corporate  functions  or  to  those  relating  to 
their  pubUc  callings.  While  the  view  thus  taken  has  long  since  be- 
come obsolete,  it  is  not  at  all  strange  that  it  should  have  been  enter- 
tained when  we  consider  the  persistence  of  both  nation  and  states  in 
maintaining  the  economic  policy  of  laissez-faire  in  the  evolution  of 
our  industrial  system  prior  to  the  civil  war.  The  fundamental  dis- 
tinction betw^een  public  callings  and  private  callings  was  then  generally 
either  disregarded  or  not  recognized.  In  accordance  with  the  pre- 
vailing economic  theory  of  the  times,  competition,  whether  active,  or 
potential,  that  is,  theoretically  possible  though  practically  improb- 
able, was  regarded  as  the  efficacious  means  of  securing  to  the  general 
public  adequate  service  at  reasonable  prices  from  individuals  and  cor- 
porations engaged  in  businesses  now^  classified  as  public  callings. 

Even  the  right  of  the  public  in  the  use  of  property  which  was  de- 
voted to  a  public  service  by  virtue  of  legislative  authority,  and  w'hich 
could  not  be  so  employed  without  such  authority,  was  almost  wholly 
ignored  and,  in  fact,  in  certain  instances,  expressly  denied.  Thus,  in 
1858  the  Supreme  Court  of  New  Jersey  ^  held  that  a  gas  company 

'  Patterson  Gas  Lt.  Co.  vs.  Brady,  27  N.  J.  L.  248. 


COMMISSIONS  AND   BOARDS  345 

chartered  by  the  state  and  occupying  public  streets  of  a  city  with  its 
distribution  system  by  virtue  of  a  local  franchise  was  under  no  obli- 
gation to  supply  gas  to  any  one,  that  it  could  choose  its  customers 
the  same  as  any  other  manufacturer,  and  make  such  charges  as  it 
desired.  The  following  year  the  Court  of  Common  Pleas  ^  of  Great 
Britain  denied  any  right  in  a  consumer  to  have  gas  supplied  to  him  in 
the  absence  of  a  contract  with  the  company  providing  for  the  same. 
Lord  Chief  Justice  Cockburn  said :  "We  cannot  imply  a  contract  from 
the  accidental  circumstance  of  this  company  having  a  monopoly  of 
the  supply  of  gas  to  the  neighborhood.  I  see  nothing  whatever  to 
bind  either  the  one  party  to  take  or  the  other  to  furnish  the  supply 
any  longer  than  their  convenience,  or  their  caprice,  if  you  will,  may 
induce  them  to  takeor  to  supply."  In  1862  we  find  the  Supreme  Court 
of  Connecticut  -  declaring  that  the  "manufacture  and  sale  of  gas  is  a 
business  which  may  be  prosecuted  or  discontinued  at  the  will  of  the 
party  engaged  in  it ;  that  the  relations  between  the  maker  and  the 
consumer  originate  in  the  contract  between  them,  and  their  respective 
rights  and  obligations  are  controlled  entirely  by  the  stipulations  of 
such  contract,  and  as,  (where  no  contract  prohibits)  the  one  may 
refuse  to  take  the  article  at  his  pleasure,  so  may  the  other  at  his  pleas- 
ure refuse  to  supply  it"  ;  and  that  there  is  no  reason  discovered  "for 
subjecting  the  maker  of  gas  to  duties  or  liabilities  beyond  those  to 
which  the  manufacturers  and  venders  of  other  commodities  are  sub- 
jected by  the  rules  of  law."  As  late  as  1866  the  Supreme  Court  of 
Massachusetts  ^  expressed  the  same  \dew,  although  seventeen  years 
pre\dous  Chief  Justice  Shaw,"*  passing  upon  the  constitutionality  of 
an  act  conferring  the  power  of  eminent  domain  upon  a  water  com- 
pany, said :  "The  supply  of  a  large  number  of  inhabitants  with  pure 
water  is  a  public  purpose."  This  conclusion,  however,  was  based 
upon  an  interpretation  of  the  terms  of  the  company's  charter,  which, 
as  has  been  said,  "was  plainly  unjustifiable  unless  there  was  an  under- 
lying public  duty."  The  logic  of  these  decisions  found  no  favor  with 
the  Supreme  Court  of  Wisconsin,  for  at  the  same  time,  in  1858,  that 
the  Supreme  Court  of  New  Jersey  was  considering  whether  a  gas 
company  was  engaged  in  a  public  or  a  private  calling,  the  same  ques- 
tion was  under  consideration  by  our  Supreme  Court  in  the  case  of 
Shepard  vs.  The  Milwaukee  Gas  Light  Co.,  6  Wis.  539,  in  which  the 
arguments  which  led  to  the  doctrine  of  the  courts  of  the  Atlantic 
states  and  Great  Britain  were  refuted  and  a  contrary  opinion  expressed. 
This  case  is  important  as  it  is  the  first  to  give  partial  recognition,  at 
least,  to   the  principle  that   when    any  business  of   general  public 

1  Huddesdon  Gas  Co.  vs.  Haselwood,  6  C.  B.  (N.  S.)  230. 

2  McCune  vs.  Norwich  City  Gas  Co.,  30  Conn.  523. 

3  Commonwealth  vs.  Lowell  Gas  Light  Co.,  12  Allen  77. 
*  Lombard  vs.  Stearns,  7  Cush.  62. 


346  COMMISSIONS   AND   BOARDS 

concern  is  in  its  nature  or  by  reason  of  circumstances  a  virtual  mo- 
nopoly it  ceases  to  be  stricti  privali,  falls  within  the  class  of  public 
callings  and  is  subject  to  the  rules  of  the  common  law  relating  to  such 
enterprises. 

In  considering  the  obligation  of  those  engaged  in  operating  public 
utilities  to  serve  the  public,  the  courts  generally  seem  to  view  the 
same  as  a  duty  imposed  by  specific  charter  or  general  legislative  pro- 
vision rather  than  as  resting  upon  a  common  law  right  in  the  public 
arising  out  of  the  nature  and  character  of  the  business.  The  latter 
basis  is  certainly  the  sounder,  and,  in  the  absence  of  any  specific  legis- 
lation on  the  subject,  would,  it  is  safe  to  say,  if  the  situation  should 
arise  in  any  case  at  the  present  day,  receive  judicial  recognition  in  any 
court,  for  in  the  last  analysis  the  fundamental  distinction  between  a 
public  calling  and  a  private  calling  is  an  economic  one.  In  the  one 
case  there  is  \drtual  monopoly ;  in  the  other,  virtual  competition. 

It  was  not,  however,  until  Munn  vs.  Illinois,^  the  first  of  the  so- 
called  Granger  Cases,  reached  the  Supreme  Court  of  the  United  States 
and  was  there  decided,  that  the  right  of  the  public  in  the  use  of  private 
property  devoted  to  a  public  purpose  which,  in  its  nature  and  because 
of  economic  conditions,  clothed  the  owner  with  a  practical  monopoly, 
was  fully  recognized  in  its  economic  aspects  and  as  legally  grounded 
upon  the  principles  of  the  common  law.  This  case  marks  the  begin- 
ning of  a  new  epoch  in  economic  legislation  affecting  public  service 
corporations  in  this  country.  The  existing  regulatory  means  of  nation 
and  states  respecting  common  carriers  now  provided  by  express  legis- 
lative enactments  were  the  inevitable  consequences  of  the  decision  in 
the  Munn  Case.  The  agitation  of  Federal  control  of  interstate  car- 
riers at  once  began  in  Congress  and  continued  until  the  enactment 
of  the  Interstate  Commerce  Act.  State  after  state  took  up  the  sub- 
ject and  enacted  laws  along  the  lines  of  the  Federal  act  until  to-day 
a  number  of  states  have  pro\dded  state  agencies  for  the  control  and 
supervision  of  transportation  by  railroads  and  other  common  carriers. 
Perhaps  the  most  efficient  and  certainly  the  most  carefully  considered 
law  on  the  subject  is  the  Railroad  Commission  Act  of  Wisconsin. 
Since  its  enactment  the  Wisconsin  law  has  been  the  prototype  of 
practically  all  legislation  upon  the  subject  in  other  states  where  intel- 
ligent and  efi'ective  regulation  has  been  desired. 

While  the  attention  of  the  public  was  centered  upon  a  resolution 
of  the  question  of  the  regulation  of  transportation  because  of  its  general 
importance,  it  was  apparent  upon  the  slightest  reflection  by  the 
observer  of  the  trend  of  economic  thought  and  events  of  the  time 
that  it  would  not  be  long  until  all  public  utilities  would  be  subjected 
to  state  supervision ;  for  the  same  causes  which  led  the  state  to  exer- 
cise its  governmental  function  of  regulating  railroads,  existed  in  the 

1  g4  U.S.  113. 


COMMISSIONS  AND   BOARDS  347 

case  of  all  public  utilities,  but  were  generally  unknown  to  the  public. 
In  fact,  when  the  railroad  problem  was  being  seriously  considered  by 
the  people  of  this  state,  students  of  economic  science,  who  were  active 
in  urging  state  control  of  railroads  by  a  state  commission,  were  con- 
templating the  final  adoption  of  a  more  comprehensive  scheme  which 
would  place  all  public  utilities  under  a  common  state  control.  Much 
sooner  than  was  at  the  time  anticipated  their  expectations  were 
realized,  for  in  less  than  two  years  from  the  time  the  Railroad  Com- 
mission Act  became  effective,  the  propaganda  resulted  in  inducing 
the  legislature  to  supplement  the  Railroad  Act  with  the  Public  Utili- 
ties Law  now  in  force.  The  scheme  of  state  supervision  of  public 
utilities  embraced  in  this  law  is  the  most  comprehensive  in  all  its 
economic  aspects  and  the  most  effective  of  any  law  of  the  kind  in 
existence.  .  .  . 

Certain  features  of  the  Public  Utilit'es  Law  are  revolutionary  in 
their  character,  and  upon  these  hangs  the  fate  of  every  public  utility 
operating  within  the  state.    These  features  are  worthy  of  consideration. 

Valuation  and  its  Effect  on  Securities 

Among  the  most  important  and  salutary  provisions  of  the  law  is 
that  providing  for  the  valuation  of  the  property  of  all  public  utilities 
operating  within  the  state.  The  Supreme  Court  of  the  United  States 
having  in  effect  determined  that  the  owner  of  private  property  de- 
voted to  a  public  use  is  entitled  to  exact  from  the  public  such  charges 
for  the  services  rendered  or  product  furnished  by  him  to  the  public 
as  will  generally  produce  revenue  sufficient  to  meet  operating  expenses, 
cost  of  maintenance,  and  depreciation  of  the  plant,  and  also  to  pro- 
vide a  reasonable  return  upon  a  fair  value  of  the  property  so  em- 
ployed, it  was  necessary  to  provide  for  an  appraisal  of  such  property 
in  order  to  have  a  lawful  basis  upon  which  to  determine  intelligently 
the  question  of  rates  and  charges.  As  most  public  utility  plants  are 
owned  and  operated  by  public  service  corporations  whose  corporate 
securities  as  a  rule  bear  no  relation  either  to  the  actual  investment  in 
or  present  value  of  such  plants,  some  other  measure  of  the  value  of 
such  plants  was  required.  In  fact,  the  capital  stock  of  a  public  service 
corporation  often  represents  little  more,  if  anything,  than  the  capitali- 
zation of  an  image  of  the  vivid  imagination  of  some  not  over-scrupulous 
promoter. 

That  every  legitimate  element  of  value,  whether  tangible  or  in- 
tangible, might  be  considered,  the  law  provides  for  the  valuation  of 
the  physical  property  and  of  all  the  property  of  a  public  utility 
"actually  used  and  useful  for  the  convenience  of  the  public."  In 
view  of  the  indefinite  and  uncertain  statements  found  in  the  opinions 
of  most  of  the  courts  regarding  the  elements  of  value  that  properly 


348  COMMISSIONS  AND   BOARDS 

and  necessarily  enter  into  the  matter  and  must,  therefore,  be  con- 
sidered in  arriving  at  the  fair  and  just  valuation  of  the  active  property 
of  a  public  utility,  the  legislature  wisely  extended  the  latitude  of  the 
inquiry  so  that  no  infirmity  in  the  scheme  of  valuation  proposed  might 
exist  because,  perchance,  of  some  transgression  of  the  provisions  of 
either  the  state  or  the  Federal  constitution  inhibiting  the  taking  of 
private  property  for  public  purposes  without  just  compensation  being 
made  to  the  owner  thereof.  Between  the  Scylla  of  a  physical  valua- 
tion and  the  Charybdis  of  a  stock  and  bond  valuation  the  Commis- 
sion is  thus  left  by  the  law  to  steer  its  course  in  arriving  at  a  valuation 
for  earning  purposes  which  will  be  just  to  the  legitimate  investment 
upon  the  one  hand  and  fair  and  equitable  to  the  public  upon  the 
other  hand.  The  duty  thus  imposed  upon  the  Commission  is  the 
gravest  and  most  important  of  all  its  functions.  The  value  of  every 
security  of  a  public  service  corporation  in  this  state  will  be  determined 
and  perhaps  irrevocably  fixed  by  the  appraisal  made  by  the  Com- 
mission of  the  property  of  such  corporation  upon  the  credit  of  which 
such  security  was  issued.  There  can  be  no  escape  from  this  conclu- 
sion. The  effect  will  be  of  far  reaching  importance.  Fair  and  reason- 
able as  such  appraisal  may  be,  it  will  signify  to  the  world  that  in  the 
future  public  utilities  in  this  state  will  cease  to  be  subjects  for  specu- 
lative investments.  It  will  also  indicate  that  which  is  more  important, 
to-wit,  that  actual  and  bona  fide  investments  in  such  concerns,  when 
providently  made,  will  be  secure  under  state  supervision  and  the  ade- 
quacy of  the  security  will  be  maintained  by  a  strict  enforcement  of 
the  law  requiring,  wherever  and  whenever  possible,  an  adequate  de- 
preciation reserve  fund  to  be  set  aside  so  that  the  physical  plant  may 
at  all  times  be  maintained  to  a  maximum  of  efficiency,  and  the  integ- 
rity of  the  investment  may  not  be  impaired  from  any  cause  or  con- 
tingency incident  to  the  operation  and  use  of  the  property. 

The  need  of  additional  capital  to  extend  existing  plants  to  meet 
the  public  rec^uirements  may  be  met  at  less  sacrifice,  in  my  judgment, 
under  such  circumstances,  than  the  customary  bond  discounts  of  the 
present  day,  and  if  we  are  to  accept  the  word  of  some  of  our  leading 
financiers,  capital  under  the  conditions  mentioned  will  be  available 
at  less  rates  than  are  at  present  in  vogue.  A  leading  banker  and 
financier  of  this  state,  in  testifying  before  the  Commission,  expressed 
his  view  of  the  probable  effect  the  Public  Utilities  Law  would  have 
upon  such  securities  as  follows :  "I  think  it  (the  law)  will  have  a  very 
favorable  influence  upon  all  classes  of  securities.  I  think  what  capital 
wants  is  a  steady  return  and  I  think  they  are  satisfied  with  a  greatly 
reduced  return  if  there  is  a  guarantee  they  will  have  it  steady."  As 
the  revenues  of  public  service  corporations  are  usually  less  affected 
by  industrial  depressions  and  general  financial  disturbances  than  those 
of  most  manufacturing  and  mercantile  concerns,  steady  returns  upon 


COMMISSIONS  AND   BOARDS  349 

securities  representing  actual  investments  in  public  utilities  are  more 
likely  to  occur,  as  a  rule,  than  in  the  case  of  industrial  stocks. 

There  is  no  reason  why  the  bonds  of  public  service  corporations 
at  a  low  rate  of  interest  should  not  compete  in  a  measure  with  pub- 
lic securities  for  the  favor  of  those  seeking  secure  investments  and 
such  as  are  readily  convertible  into  cash.  In  some  of  the  New  Eng- 
land states,  notably  Massachusetts,  they  stand  on  a  parity  with  public 
securities,  and  by  law  are  permitted  to  be  purchased  by  savings  banks 
and  to  become  investments  for  trust  funds.  Doubtless  in  time  we 
may  find  the  same  conditions  prevailing  here,  but  before  such  is  likely 
to  be  the  case  many,  if  not  most,  of  our  public  utilities  will  have  to 
undergo  a  financial  regeneration.  To  insure  stability  to  the  securi- 
ties it  is  essential  that  they  approximate  a  truthful  representation  of 
the  investment.  When  the  disparity  between  the  actual  investment  and 
that  reflected  by  the  capitalization  becomes  a  matter  of  public  record, 
the  self-interest  of  the  security  holders  will  doubtless  bring  about  a 
readjustment  of  the  capitalization  upon  a  sound  and  truthful  basis. 
This  has  occurred  in  almost  every  public  service  corporation  of  any 
importance  in  the  country,  and  in  some  has  occurred  more  than  once. 

Those  who  desire  to  withstand  any  scaling  of  capitalization  when 
the  latter  is  discredited  by  financiers  and  becomes  an  impediment  to 
business  extension  often  contend,  but  never  successfully,  that  the 
capitalization  of  a  public  service  corporation  does  not  concern  the 
public;  that  the  securities  of  such  a  corporation  are  mere  private 
corporate  contracts  between  the  parties  thereto,  and  should  therefore 
be  permitted  to  assume  such  lawful  form  as  the  parties  in  interest 
may  agree  upon.  The  contention  in  relation  to  stock  issues  contains 
an  element  of  truth,  but  in  relation  to  bond  issues  and  other  evidences 
of  indebtedness  it  is  without  any  moral  or  reasonable  basis  for  sup- 
port ;  but  even  before  it  can  be  conceded  as  sound  in  connection  with 
the  issue  of  capital  stock  there  must  be  a  radical  change  in  the  char- 
acter of  such  securities.  If  each  share  of  stock  represented  upon  its 
face  but  an  aliquot  part  of  the  property  of  the  corporation,  the  num- 
ber of  parts  into  which  the  corporators  should  divide  the  corporate 
holdings  would  be  of  no  public  consequence,  and  this  is  particularly 
true  in  this  state  under  the  Public  Utilities  Law,  by  the  terms  of 
which  the  return  to  the  investors  is  based  upon  the  fair  value  of  the 
active  property  of  the  corporation  which  forms  the  measure  of  the 
value  of  the  securities  issued  against  it.  But  so  long  as  each  share  of 
stock  bears  upon  its  face  the  suggestion  or  implication  that  it  repre- 
sents a  fixed  sum  acutally  invested  in  the  property,  it  is  a  matter  of 
morals  as  well  as  of  grave  public  interest  that  the  representation  be 
true,  for  as  a  rule  the  poorer  the  security  the  more  widely  it  is  dis- 
tributed, and  those  who  ultimately  receive  it  are  generally  persons 
that  can  ill  afford  to  bear  the  loss. 


350  COMMISSIONS   AND   BOARDS 

The  fear  has  been  expressed  that  under  the  new  order  of  public 
utility  affairs  in  this  state  foreign  capitalists  will  dispose  of  their 
public  utility  holdings  and  refuse  to  consider  further  investments  in 
such  enterprises.  I  doubt  very  much  the  timidity  of  capital  seeking 
safe  investments  either  to  remain  in  or  to  enter  a  field  where  substance 
and  not  illusion  is  to  be  the  basis  of  any  issue  of  corporate  securities. 
Even  if  there  should  be  a  redistribution  of  public  utility  securities 
for  any  reason,  it  will  be  found  that  citizens  of  Wisconsin  who  are 
cognizant  of  the  purposes  of  the  people  of  this  state  in  placing  all 
public  utilities  under  state  surveillance  will  regard  such  securities  as 
inviting  investments  and  seize  the  opportunity  to  acquire  them.  There 
would  be  an  advantage  in  this,  for  it  would  inure  to  the  benefit  of 
communities  if  public  utilities  were  generally  owned  by  the  people 
whom  they  serve  and  who  have  the  greatest  interest  in  their  welfare. 
It  would  also  result  in  a  fuller  appreciation  on  the  part  of  the  people 
of  the  true  relation  which  such  utilities  bear  to  the  public,  and  bring 
about  a  closer  and  more  harmonious  cooperation  between  the  manage- 
ments of  such  concerns  and  the  public  authorities. 

Perhaps  the  best  assurance  that  investors  in  the  bona  fide  securities 
of  public  service  corporations  will  be  protected  in  their  investments, 
is  the  policy  indicated  by  the  Supreme  Court  of  the  state  that  should 
govern  the  Commission  in  its  requirements  of  such  corporations. 
Justice  Timlin  in  the  case  of  the  Minneapolis,  St.  Paul  &  Sault  Ste. 
Marie  Railway  Company  vs.  Railroad  Commission,  ii6  N.  W.  913, 
delivering  the  opinion  of  the  court  says : 

In  determining  whether  or  not  the  order  of  the  commission  is  unreason- 
able, it  must  also  be  considered  that  every  unnecessary  burden  imposed 
upon  the  railroad  impairs  its  net  receipts  and  diminishes  that  margin,  if 
there  be  one,  between  the  amount  sufficient  to  assure  a  fair  return  on  the 
value  of  its  property,  plus  the  amount  of  its  fixed  charges  and  operating 
expenses,  and  its  gross  receipts.  In  this  margin  the  public  and  the  railroad 
are  interested,  because  it  is  only  when  this  exists  that  betterments  in  con- 
struction or  improvements  in  service  not  imperative  or  indispensable,  or 
reduction  in  rates,  will  ordinarily  be  voluntarily  made  by  the  railroad  or 
can  ordinarily  be  ordered  or  enforced  by  the  commission.  We  are  not  now 
speaking  of  those  extreme  cases  where  public  duty  must  be  discharged, 
whatever  the  financial  consequences  to  the  railroad.  But  in  ordinary  cases 
to  waste  this  margin  is  to  waste  the  fund  in  which  the  whole  public  is  in- 
terested. This  should  never  be  done  for  the  benefit  of  the  few,  as  against 
the  interests  of  the  many. 

It  is  also  to  be  considered  that  this  margin  ought  not  ordinarily  to  be 
exhausted  or  swept  away  by  orders  or  requirements  of  the  Railroad  Com- 
mission as  fast  as  accumulated,  because  human  nature  or  railroad  nature 
is  such  that  no  one  will  long  economize  on  operating  or  other  expenses  if 
his  economy  only  furnishes  a  larger  basis  for  further  exactions. 


COMMISSIONS  AND   BOARDS  351 

Uniform  System  of  Accounting 

The  uniform  system  of  accounting  required  of  all  public  utilities 
under  the  provisions  of  the  law  has  already  demonstrated  the  wisdom 
of  its  adoption.  The  statistics  thus  afforded  are  being  carefully 
analyzed  and  compared  by  those  engaged  in  the  management  and 
operation  of  utility  plants,  and  as  a  result  great  interest  is  being 
aroused  in  the  matter.  As  the  utilities  are  classified  according  to 
size  for  the  purpose  of  accounting,  it  enables  each  utility  to  compare 
the  results  of  its  own  operations  and  management  with  those  of  other 
utilities  more  nearly  resembling  it  in  important  characteristics  and 
thus  to  benefit  by  the  experience  of  others  engaged  in  a  like  service 
under  approximately  similar  circumstances.  The  balance  sheets  and 
accompanying  reports  are  becoming  matters  of  increasing  interest 
and  investigation  on  the  part  of  the  public,  and  as  they  reflect  the 
experience  and  result  of  operation  of  each  plant,  it  is  obvious  that 
self-interest  as  well  as  public  sentiment  that  will  be  engendered  by  a 
comparative  study  of  such  statistics  by  the  press  and  public  authori- 
ties, will  induce  alertness  in  the  managements  of  such  enterprises  to 
observe  and  adopt  economies  in  operation,  extend  the  business,  im- 
prove the  service  and  lower  the  cost  to  the  patron. 

While  the  system  of  accounting  comprehends  a  scientific  and  care- 
fully arranged  separation  of  accounts,  its  application  to  the  various 
situations  and  conditions  under  which  the  utilities  are  operating  may 
result  in  certain  modifications  which  experience  may  demonstrate  to 
be  necessary  before  the  method  of  accounting  will  be  permanently 
established. 

But  the  principles  upon  which  the  system  has  been  constructed, 
being  in  accord  with  the  best  thought  and  practice  on  the  subject, 
will  not  be  changed.  Nor  will  the  system  be  weakened  to  satisfy  the 
theory  of  those  who  believe  that  the  public  should  be  satisfied  with 
general  statements  of  receipts  and  expenditures  rather  than  detailed 
reports  differentiating  the  items  in  accounts  that  wnll  enable  an  intelli- 
gent judgment  to  be  formed  of  the  various  details  of  operation  and 
management.  Any  alteration  in  established  business  methods  neces- 
sarily meets  with  the  opposition  of  the  non-progressive  and  self- 
satisfied  manager,  but  when  a  change  is  once  inaugurated  such 
resistance  passes  away  and  a  return  to  the  old  methods  would  be  met 
with  equal  aversion. 

All  municipal  public  utilities  will  be  required  to  keep  their  accounts 
in  conformity  with  the  established  system.  This  is  essential  for  the 
sake  of  comparison  and  also  for  judging  the  efficiency  of  the  manage- 
ment. Communities  owning  and  operating  their  own  plants  will  be 
afforded  an  opportunity  of  measuring  the  business  ability  and  com- 
petency of  those  intrusted  with  the  management  and  operation  of 


352  COMMISSIONS  AND   BOARDS 

such  plants.  Extravagance  or  inefficiency  in  administration  will  be 
readily  detected  and  public  opinion  may  be  relied  upon  to  bring  about 
a  reform  where  needed  and  to  enforce  a  business  administration  of 
such  municipal  commercial  enterprises. 

The  most  vital  objection  urged  against  municipal  ownership  and 
operation  of  public  utility  plants  has  been  the  lack  of  business  ability 
generally  displayed  in  such  undertakings.  While  there  is  consider- 
able force  to  the  objection,  as  municipal  plants  have  often  been  in- 
trusted to  incompetent  servants  and  are  subject  to  be  so  intrusted 
because  of  local  political  expediency  or  from  other  improper  motives, 
the  evil,  in  my  judgment,  wherever  it  exists,  has  arisen  and  been 
permitted  to  exist  because  of  the  fact  that  the  public  has  had  no  cer- 
tain criterion  by  which  to  determine  the  real  situation  of  affairs. 
However,  under  the  plan  of  accounting  provided  by  the  law"  and  with 
the  exercise  of  reasonable  diligence  on  the  part  of  those  charged  with 
its  execution,  I  see  no  reason  why  municipal  plants  may  not  be  ad- 
ministrated as  efficiently  and  economically  as  those  controlled  by 
private  capital.  Those  in  control  of  such  plants  will  be  obliged, 
under  the  circumstances,  to  forego  all  other  considerations  except  to 
so  manage  the  affairs  of  the  business  that  the  results  of  their  adminis- 
tration will  compare  favorably  with  those  of  others  engaged  in  similar 
undertakings,  whether  publicly  or  privately  controlled  and  operated, 
or,  in  case  of  inability  to  thus  demonstrate  to  the  public  the  efficiency 
of  their  services,  they  will  be  required  to  relinquish  their  trust  to  more 
competent  hands. 

The  Work  of  the  Engineering  Staff 

Pre\'ious  to  the  enactment  of  the  Public  Utilities  Law  a  consider- 
able staff  of  engineers  had  been  jointly  serving  the  tax  and  railroad 
commissions,  chiefly  in  connection  with  the  valuation  of  the  physical 
properties  of  the  steam  and  electric  railways  of  Wisconsin.  There  are 
upwards  of  twxnty  electric  railway  properties  in  the  state,  and  one- 
half  of  these  latter  companies  are  also  engaged  in  the  sale  of  electric 
current  for  lighting  and  industrial  power.  Due  to  this  association  of 
properties  for  operating  purposes  and  to  these  earlier  railway  valua- 
tions, there  arose  the  fortunate  condition  that  a  substantial  beginning 
had  already  been  made  in  the  work  of  valuation  of  certain  of  the 
more  important  public  utilities  properties  by  the  time  that  adminis- 
trative action  by  the  Commission  had  fairly  begun  under  the  Utilities 
Law. 

It  was  further  found  to  be  a  comparatively  simple  matter  to  pro- 
vide for  the  standardization  work  contemplated  by  the  Utilities  Law 
by  the  addition  of  other  branches  or  departments  of  technical  service, 
and  by  widening  somewhat  the  scope  of  the  work  performed  by  the 


COMMISSIONS  AND   BOARDS  353 

experts  previously  engaged  in  the  joint  engineering  work  for  the  two 
commissions. 

It  is  a  matter  of  particular  interest  that  this  use  of  a  joint  engineer- 
ing staff  is  peculiar  to  Wisconsin.  The  scope  of  this  service  may  be 
better  appreciated,  perhaps,  by  an  enumeration  of  the  titles  of  the 
laws  under  which  the  need  of  this  expert  staff  has  arisen.  These  are, 
in  part,  as  follows :  The  Tax  Commission  Law,  the  Railroad  Com- 
mission Law,  the  Steam  Railroad  Ad  Valorem  Assessment  Law,  the 
Street  Railway  Assessment  Law,  the  Public  Utilities  Law,  the  law 
regulating  stock  and  bond  issues  of  railway  and  utilities  companies, 
the  "Public  Convenience  and  Necessity"  Law,  the  "Two-Mile"  In- 
dustry Track  Law,  and  the  laws  relating  to  railroad  crossings  and 
safety  appliances.  These  laws,  it  is  interesting  to  observe,  for  the 
most  part  have  been  enacted  within  the  past  six  years. 

The  joint  engineering  staff  is  made  up  of  several  departments 
designated  according  to  the  kind  of  work  customarily  performed  by 
each.  The  following  statement,  drawn  from  the  last  annual  report 
of  the  Commission,  details  quite  fully  the  duties  relating  specifically 
to  the  public  utilities,  together  with  those  touching  the  ^'arious  other 
lines  of  acti\dty  engaging  the  attention  of  the  technical  staff. 

1.  Civil  Engineering  Staff.  Engaged  in  the  inspection  and  valuation  of 
those  details  of  the  physical  property  of  steam  and  electric  railways  and 
public  utilities  plants  which  are  customarily  purchased,  constructed,  or 
maintained  under  the  direction  of  civil  engineers ;  including  such  items  as 
the  following :  Lands,  track,  track  structures  and  bridges ;  buildings  and 
miscellaneous  structures,  such  as  gas  holders,  standpipes,  reservoirs,  dams, 
wells  and  foundations ;  earthwork  and  paving,  pipe  distribution  systems 
for  water,  gas  and  steam  heating  plants,  including  tunnels  for  same ;  office 
furniture  and  appliances;  horses  and  wagons;  tools,  stores  and  supplies 
pertaining  to  the  foregoing  items  ;  etc.  Also  investigations,  in  cooperation 
with  other  departments,  with  a  view  to  suggest  improvements  in  the  operat- 
ing conditions  of  railways,  waterworks  plants,  etc. 

2.  Mecl/anical  Engineering  Stajf.  Engaged  in  the  inspection  and  valua- 
tion of  those  details  of  the  physical  property  of  steam  and  electric  railways 
and  public  utilities  plants  which  are  customarily  purchased,  constructed  or 
operated  under  the  direction  of  mechanical  experts  or  engineers;  including 
such  items  as  the  following:  Power  plant  machinery  and  equipment  (exclu- 
sive of  electrical  features)  ;  steam  and  hot  water  plants  (except  street  mains) ; 
steam  road  locomotives  and  rolling  stock  ;  ship  tools  and  machinery ;  tools, 
stores  and  supplies  pertaining  to  the  above  items ;  etc.  Also  investiga- 
tions, in  cooperation  with  other  departments,  with  a  view  to  suggest  im- 
provements in  the  operating  conditions  of  waterworks,  heating  plants, 
power  plants,  etc. 

3.  Electrical  Engineering  StaJf.  Engaged  in  the  inspection  and  valua- 
tion of  those  details  of  the  physical  property  of  steam  and  electric  railways 
and  public  utilities  plants  which  are  usually  constructed,  purchased  or 
operated  under  the  direction  of  electrical  experts  or  engineers,  including 


354  COMMISSIONS   AND   BOARDS 

electrical  machinery  and  appliances  in  power  plants  and  elsewhere ;  electric 
railway  rolling  stock ;  electrical  distribution  systems,  overhead  and  under- 
ground ;  telephone  plants  ;  signaling  appliances  ;  tools,  stores  and  supplies 
related  to  the  above  items ;  etc.  Also  investigations,  in  cooperation  with 
other  departments,  with  a  view  to  suggest  improvements  in  the  operating 
conditions  of  electric  railways,  power  plants,  telephone  properties,  etc. 

4.  Gas  Engineering  StaJJ.  Engaged  in  the  inspection  and  valuation  of 
machinery  and  appliances  for  the  manufacture  of  gas ;  tools,  stores  and 
supplies  pertaining  to  the  same;  etc.  Also  investigations,  in  cooperation 
with  other  departments,  with  a  view  to  suggest  improvements  in  the  operat- 
ing conditions  of  gas  plants. 

5.  Gas  and  Electric  Service  Inspections.  Engaged  in  inspections  and 
investigations  of  gas  and  electric  service;  studies  with  reference  to  the 
establishmei.t  and  revision  of  standards  of  service  and  the  formulation  of 
rules  for  the  same ;  tests  and  calibrations  of  instruments  used  in  service 
measurements;  investigations  with  reference  to  the  electrolysis  of  water 
and  gas  mains ;  etc.  Also  investigations,  in  cooperation  with  other  de- 
partments, with  a  view  to  suggest  improvements  in  the  operating  conditions 
of  gas  and  electric  plants. 

6.  Miscellaneous.  Experts  engaged  temporarily  for  special  service  of 
various  kinds,  either  independently  or  in  cooperation  with  one  or  more  of 
the  foregoing  departments.  Such  service  hitherto  rendered  has  included 
such  matters  as  the  following:  Consultation  with  prominent  architect 
relative  to  valuation  of  costly  city  buildings  ;  service  of  expert  in  investiga- 
tions as  to  the  safety  of  an  important  bridge;  expert  valuation  of  the  horses, 
harness,  etc.,  belonging  to  a  large  electric  railway  and  lighting  company; 
expert  assistance  in  establishing  a  basis  for  valuing  street  railway  special 
work ;  etc. 

The  work  of  the  expert  staff  under  the  Utilities  Law  falls  under 
three  general  heads,  (i)  valuation  work,  (2)  service  inspectional 
work,  and  (3)  studies  of  operating  conditions. 

Valuation  Work 

The  Utilities  Law  prescribes  (sect.  i797m-5)  that  "the  commission 
shall  value  all  the  property  of  every  public  utility  actually  used  and 
useful  for  the  convenience  of  the  public,"  and  further  provides  that 
''in  making  such  valuation  the  commission  may  avail  itself  of  any 
information  in  possession  of  the  state  board  of  assessment." 

The  valuations  thus  far  made  have  been  vmdertaken  for  the  most 
part  in  connection  with  rate  complaint  cases,  although,  as  above 
indicated,  the  law  contem.plates  the  ultimate  valuation  of  every 
utilities  property  in  the  state. 

The  methods  emplo}^ed  by  the  engineering  staff  in  the  valuation 
of  the  physical  property  of  public  utilities  plants  are  in  most  respects 
in  close  agreem.ent  with  those  adopted  early  in  1907  for  the  valuation 
of  the  electric  railway  properties  of  the  state  for  the  joint  purposes  of 


COMMISSIONS   AND   BOARDS  355 

the  two  commissions.     These  methods  in  general  embrace  the  follow- 
ing somewhat  distinct  steps  or  processes : 

1.  The  preparation  of  a  detailed  descriptive  inventory. 

2.  Field  examinations  of  the  property  by  a  trained  staff. 

3.  Determination  of  the  "cost  new"  of  each  item. 

4.  Estimation  of  the  depreciation  on  each  item  of  property. 

5.  Calculation  of  the  present  value. 

6.  Summing  up  the  detailed  valuations  by  groups. 

Without  entering  into  a  detailed  description  of  the  methods  used 
in  this  work,  it  will  suffice  for  the  purposes  of  this  discussion  to  state 
that  the  engineering  staff  endeavors  to  determine  as  accurately  as 
possible  the  true  "cost  of  reproduction"  of  each  item  of  physical 
property  included  in  the  inventory.  All  available  evidence  is  care- 
fully weighed  with  a  definite  purpose  of  arriving  at  a  "middle-ground" 
decision  on  the  value  of  each  detail  of  the  property,  both  as  to  the 
"cost  new"  and  the  depreciated  or  "present  value."  Throughout 
its  work  the  attitude  of  the  staff  is  carefully  guarded  against  bias  of 
any  kind,  with  the  intention  that  the  service  rendered  to  the  Com- 
mission shall  be  identical  in  kind  and  quality  with  that  of  a  technical 
expert  chosen  independently  by  the  court  to  give  expert  advice  or 
opinions  in  technical  matters.  This  balance  of  judgment,  it  is  be- 
lieved, is  strongly  sustained  by  the  fact  that  the  staff  is  continually 
engaged  in  physical  valuations  for  both  taxation  and  rate-making 
purposes. 

In  the  course  of  its  work,  extending  through  a  period  of  years  and 
covering  the  Avidest  possible  range  or  variety  of  detail  of  physical 
properties,  there  has  been  accumulated  a  vast  fund  of  cost  data  and 
other  information  invaluable  in  work  of  this  kind,  much  of  the  data 
naturally  being  of  a  confidential  character.  An  important  feature  of 
the  valuation  staff  work  is  the  collection  and  assimilation  of  this 
information. 

The  reports  of  the  staff  submitted  to  the  Commission  are  custom- 
arily designated  "tentative  valuations,"  copies  of  which  are  sub- 
mitted to  the  interested  parties  to  serve  as  a  basis  of  discussion  at  the 
formal  hearings.  In  a  fair  proportion  of  the  cases  expert  testimony 
is  submitted  by  the  interested  parties.  Such  testimony  often  shows 
a  natural  tendency  to  partisanship  and  bias,  although  there  is  usually 
a  gratifying  disposition  to  be  fair.  After  all  evidence  is  in,  the  en- 
gineering staff  is  asked  to  review  the  record  and  make  any  revisions 
it  may  desire  before  submitting  the  final  or  revised  report,  which  is 
then  weighed  with  other  evidence  by  the  Commission.  Throughout 
this  work  the  staff  is  left  to  reach  its  own  conclusions  without  in- 
fluence or  suggestion  from  the  Commission. 

During  the  year  1908  the  valuations  reported  upon  by  the  staff 


3S6  COMMISSIONS  AND   BOARDS 

to  the  two  commissions  aggregated  upwards  of  $277,000,000  includ- 
ing some  twenty-four  reports  on  public  utilities  properties  valued  by 
the  staff  at  roughly  $6,405,000,  the  remainder  covering  some  fifty- 
two  steam  railroad  properties  (7090  miles),  twenty-four  street  and 
interurban  railway  properties,  besides  five  cases  of  valuation  for  stock 
and  bond  issue  purposes. 

The  utilities  valuations  thus  far  reported  upon  embrace  some  of 
the  most  important  properties  in  the  state.  In  several  of  the  larger 
cities  all  the  utilities  have  been  reported  upon.  At  the  present  time 
valuations  are  being  made  of  the  municipally  owned  waterworks 
plants  at  both  Milwaukee  and  Madison,  in  both  of  which  cities  the 
Commission  now  has  in  progress  a  review  of  the  water  rate  situation. 
These  two  cases  are  probably  the  first  investigations  of  the  kind  ever 
undertaken  under  similar  circumstances. 

Public  Utilities  Service  Inspections 

Among  the  earliest  matters  to  claim  the  attention  of  the  Railroad 
Commission  in  the  execution  of  the  Public  Utilities  Law  was  the 
question  of  units  and  standards  of  service  and  tests  of  meters.  It 
was  early  seen  that  proper  administration  of  certain  provisions  of  the 
law  ^  would  necessitate  the  establishment  of  a  central  laboratory 
equipment  for  the  purpose  of  investigating  the  various  kinds  of  pub- 
lic utilities  service,  with  a  view  to  fixing  legal  units  and  standards 
and  also  to  putting  the  same  into  practice  on  a  permanent  and  uni- 
form basis  throughout  the  state.  After  some  preliminary  discussions 
and  conferences,  arrangements  were  made  whereby  the  laboratoiy 
facilities  of  the  University  of  Wisconsin  were  made  available  for  the 
purposes  of  the  Railroad  Commission,  with  the  understanding  that 
there  should  be  reciprocal  use  of  the  instrumental  equipment  to  be 
purchased  subsequently  by  the  Commission.  The  readiness  with 
which  this  fortunate  arrangement  was  effected  was  due  largely  to  the 
established  policy  of  the  University  of  Wisconsin  with  reference  to 
serving  the  state  in  every  possible  way.  Following  closely  upon  the 
agreement  above  mentioned,  the  coopeiation  of  the  U.S.  Department 

1  Note.  Utiits  of  Product  of  Service,  Sect.  22.  The  commission  shall  ascertain  and 
prescribe  for  each  kind  of  public  utility  suitable  and  convenient  standard  commercial  units 
cf  product  or  of  service.     These  shall  be  the  lawful  units  for  the  purposes  of  this  act. 

Standard  Measurements;  Accurate  Appliances,  Sect.  23.  (i)  The  commission  shall  ascer- 
tain and  fix  adequate  and  serviceable  standards  for  the  measurement  of  quality,  pressure, 
initial  voltage  or  other  condition  pertaining  to  the  supply  of  the  product  or  service  rendered 
by  any  public  utility  and  prescribe  reasonable  regulations  for  examination  and  testing  of 
such  product  or  service  and  for  the  measurement  thereof. 

(2)  It  shall  establish  reasonable  rules,  regulations,  specifications  and  standards  to  secure 
the  accuracy  of  all  meters  and  appliances  for  measurements,  and  every  public  utility  is  re- 
quired to  carry  into  effect  all  orders  issued  by  the  commission  relative  thereto.  .  .  . 

Sect.  24.  (i)  The  commission  shall  provide  for  the  examination  and  testing  of  any  and 
all  appliances  used  for  the  measuring  of  any  product  or  service  of  a  public  utility. 


COMMISSIONS   AND   BOARDS  357 

of  Standards  at  Washington  was  secured  and  definite  arrangements 
made  whereby  the  standards  used  in  the  administration  of  the  Wis- 
consin Public  Utilities  Law  shall  be  subject  to  verification  and  control 
with  reference  to  the  official  government  standards  at  Washington. 

The  arrangements  above  outlined,  it  should  be  explained,  while 
intended  to  apply  to  any  phase  of  the  question  of  units  or  standards 
which  might  arise  under  the  Public  Utilities  Law,  were  most  directly 
of  use  to  the  Commission  in  connection  with  gas  and  electric  service, 
concerning  which  service  the  necessity  of  establishing  standards  first 
arose. 

With  a  view  to  gathering  data  for  the  intelligent  working  out  of 
the  rules  and  regulations  mentioned  in  the  section  of  the  law  above 
quoted,  a  provisional  staff  was  organized  and  a  series  of  tests  of  gas 
and  electric  service  undertaken  in  a  number  of  the  cities  of  the  state. 
After  some  progress  had  been  made  in  this  investigation,  a  general 
conference  or  hearing  was  held  (March,  1908)  at  which  the  owners 
and  operating  officials  and  experts  of  the  various  gas  and  electric 
companies  as  well  as  the  municipal  authorities  of  the  state  were  given 
an  opportunity  to  express  their  views. 

The  proceedings  of  this  conference  were  supplemented  by  com- 
munications received  from  other  sovirces,  and  further  important  in- 
formation was  gathered  from  the  tests  of  service  throughout  the  state. 
After  giving  careful  consideration  to  all  available  information  the 
Commission  proceeded  to  formulate  a  set  of  rules  which  were  officially 
adopted  on  July  24,  1908,  to  become  effective  three  months  there- 
after (see  decision.  In  re  Standards  for  Gas  and  Electric  Service  in  the 
State  of  Wisconsin,  2  W.  R.  C.  R.  632).  These  regulations  consist  of 
some  twenty-five  rules  classified  as  follows :  Gas  Service :  (i)  accuracy 
of  meters,  rules  1-7  ;  (2)  heating  value,  rules  8,  9 ;  (3)  candle  power 
(no  rule)  ;  (4)  gas  pressure,  rules  10,  11 ;  (5)  purity  of  gas,  rules  12, 
13.  Electric  Service:  (i)  accuracy  of  meters,  rules  14-21 ;  (2)  regu- 
lation of  pressure  and  contiol  of  service,  rules  22-25.  Lack  of  space 
forbids  quoting  these  rules  in  full  in  this  paper,  but  reference  should 
be  made  to  an  important  departure  from  previous  practice,  consist- 
ing in  the  adoption  of  the  heating  value  as  a  test  for  the  quality  of 
gas,  to  the  exclusion  of  the  customary  photometric  or  candle  power 
test. 

The  expert  staff  has  just  submitted  to  the  Commission  an  elaborate 
review  of  all  available  data  touching  upon  the  gas  and  electric  serv- 
ice of  the  state,  with  conclusions  and  recommendations  drafted  in 
the  light  of  two  years'  experience  under  the  Public  Utilities  Law.  The 
details  of  this  report  have  not  as  yet  been  made  public,  but  it  is  gratify- 
ing to  be  able  to  state  that  the  rules  appear  to  have  substantially 
satisfied  all  requirements  in  this  important  pioneer  movement. 

That  true  reform  must  come  from  within  the  utilities  rather  than 


358  COMMISSIONS   AND   BOARDS 

from  without,  is  strikingly  illustrated  by  the  response  of  the  gas  and 
electric  companies  throughout  the  state  with  respect  to  these  rules. 
In  a  quiet  but  generally  efficient  way  there  is  now  going  on  a  steady 
improvement  in  the  quaUty  of  service  rendered  by  most  of  these  com- 
panies, almost  wholly  as  spontaneous  or  voluntary  action  towards 
comphance  vvith  the  spirit  of  the  sections  of  the  law  providing  for 
adequate  service.  Some  of  these  attempts  are  naturally  ineffectual, 
owing,  it  appears,  to  ignorance  as  to  how  to  go  about  it,  rather  than 
to  a  desire  to  evade  the  requirements  of  the  law. 

Special  emphasis  is  laid  upon  this  phase  of  the  matter  for  the  reason 
that  it  is  one  of  the  points  most  likely  to  be  overlooked  by  the  casual 
observer,  and  especially  because  it  is  in  matters  of  this  sort  that  a 
purely  local  control  must  pro^'e  defective  and  inadequate.  The 
establishment  of  an  official  standard  of  cjuality  of  service,  combined 
with  a  scheme  of  continuous  inspections  by  which  there  shall  be 
periodical  contact  between  each  utilities  company  and  a  central 
authority,  is  one  of  the  vitally  important  features  of  the  Wisconsin 
Utilities  Law. 

Studies  of  Operating  Conditions 

A  word  should  be  said  with  reference  to  a  phase  of  the  work  of  the 
engineering  staff  which  promises  far-reaching  results  when  more  fully 
developed.  Special  studies  of  local  conditions,  with  a  view  of  dis- 
covering the  underlying  causes  for  defective  service  and  of  pointing 
out  the  best  manner  of  remedying  such  defects,  affords  the  sole  means 
of  successfully  attacking  some  of  the  problems  which  confront  the 
Commission. 

The  Commission  has  carefully  guarded  against  assigning  its  staff 
to  those  lines  of  ser\dce  which  properly  should  be  undertaken  by  the 
engineer  in  private  practice.  Such  intrusion  may  perhaps  not  be 
wholly  avoided,  but  slight  encroachments,  if  they  occasionally  occur, 
are  quite  certain  to  be  outweighed  by  the  frequent  opportunities  which 
already  have  arisen  to  suggest  to  inquiring  officials  the  names  of 
eligible  practicing  engineers  to  render  a  specific  ser\ice  beyond  the 
legitimate  scope  of  the  work  of  the  staff.  This  latter  dehcate  service 
has  been  rendered  in  a  number  of  cases  by  suggesting  the  names  of 
several  engineers  eligible  for  a  given  service. 

A  few"  t}^ical  cases  of  these  special  studies  thus  far  undertaken  are 
the  following:  Investigations  of  the  causes  leading  to  deficient  fire 
ser\ace,  ^^^th  recommendations  of  remedy,  and  satisfactory  re- test 
after  plant  was  overhauled ;  investigation  of  serious  fires  with  respect 
to  adequacy  of  reserve  supply,  etc. ;  investigation  of  alleged  system- 
atic overcharges  for  gas  and  electric  service ;  investigation  of  relative 
economy  of  gasoline  gas  and  water  gas  for  small  \illages ;   studies  of 


COMMISSIONS  AND   BOARDS  359 

costs  of  repairs  and  renewals  of  gas  plants ;  studies  of  errors  of  gas 
and  electric  meters  as  affected  by  operating  conditions ;  comparative 
studies  of  street  lighting  efficiency ;  study  of  comparative  operating 
conditions  of  electric  plants  of  the  state ;  investigation  of  causes  of 
defective  service  of  heating  plants. 

In  this  same  connection  reference  should  be  made  to  special  studies 
by  members  of  the  staff  in  the  laboratories  of  the  University  of  Wis- 
consin, especially  those  relating  to  gas  calorimetry  in  cooperation 
with  the  committee  of  the  American  Gas  Institute. 

Although  not  directly  concerned  with  the  Public  Utilities  Law  itself, 
mention  may  appropriately  be  made  of  the  exhaustive  study  of  the 
service  rendered  by  the  Milwaukee  street  railway  company,  the  staff 
report  on  which  was  recently  given  to  the  public. 

These  contacts  with  the  public  have  clearly  demonstrated  the 
need  for  a  disinterested  investigating  staff  directed  by  a  central 
authority  having  powers  similar  to  those  conferred  upon  the  Rail- 
road Commission  by  the  Public  Utilities  Law. 

Indeterminate  Permit 

One  of  the  fundamental  principles  of  the  law  is  a  general  recogni- 
tion of  the  fact  that  public  utilities  are  virtual  monopolies  by  nature 
and  must  be  dealt  with  as  such  in  any  just  and  comprehensive  system 
of  state  regulation.  Without  protection  of  such  monopolies  only  a 
limited  supervision  of  their  affairs  by  public  authorities  can  be  morally 
justified.  This  is  almost  axiomatic.  Under  the  New  York  statute 
protection  against  competition  is  thrown  about  every  public  utilify 
subject  to  its  provisions,  regardless  of  the  character  of  its  franchises 
or  the  time  of  their  acquisition.  The  policy  of  our  law  is  to  grant  a 
monopoly  in  the  first  instance  only  to  public  service  corporations 
whose  secondary  franchises  are  acquired  subsequent  to  its  enactment 
and  therefore  subject  to  its  provisions  in  every  particular.  This 
policy  was  adopted  principally  because  it  was  the  desire  of  the  authors 
of  the  measure  to  relieve  municipalities  and  individuals  of  existing 
contracts  for  services  for  extended  periods  at  inequitable  rates  for 
municipal  purposes  and  private  purposes,  and,  hence,  the  condition 
was  imposed  upon  all  corporations  operating  under  franchises  granted 
prior  to  the  enactment  of  the  statute,  that  the  right  to  insist  upon  the 
enforcement  of  such  contracts  must  be  forfeited  before  their  franchises 
would  become  exclusive  and  perpetual.  A  somewhat  novel  and  per- 
haps unnecessary,  though  cautious,  scheme  or  method  of  procedure 
was  devised  to  accomplish  such  purpose.  In  order  to  perpetuate 
and  render  exclusive  secondary  franchises  granted  prior  to  the  pas- 
sage of  the  act,  it  is  necessary  for  the  corporate  proprietor  to  give 
notice  to  the  authorities  designated  in  the  act  of  its  surrender  of  its 


360  COMMISSIONS  AND   BOARDS 

franchises  and  simultaneous  with  such  surrender  a  franchise  issues  to 
such  corporation  by  operation  of  law,  which  embraces  the  surrendered 
franchises  as  previously  modified  by  the  regulatory  powers  conferred  upon 
the  Commission.  In  other  words,  it  places  the  corporation  upon  the 
same  basis  in  all  respects  with  corporations  acquiring  their  privileges 
of  doing  business  in  the  communities  which  they  serve  since  the  act 
became  effective.  By  limiting  the  time  within  which  such  action 
could  be  taken  by  public  utilities  it  was  believed  at  the  time  of  the 
passage  of  the  act  that  the  opportunity  of  securing  exclusive  rights 
and  privileges  in  perpetuity,  subject,  of  course,  to  the  right  of  pur- 
chase by  the  municipality  of  the  active  properties  of  such  utilities, 
would  be  a  sufficient  inducement  to  cause  a  surrender  of  all  secondary 
franchises  within  the  period  fixed  by  the  statute,  but  much  to  the 
surprise  of  those  who  conceived  the  plan  less  than  one  in  ten  of  the 
public  service  corporations  availed  themselves  of  the  privilege. 
Various  reasons  have  been  assigned  for  the  general  failure  of  such 
corporations  to  act  in  accordance  with  the  desire  of  the  legislature, 
but  the  controlling  reasons  for  the  attitude  assumed  by  such  corpora- 
tions in  the  matter  seem  to  have  been  (i)  a  doubt  as  to  the  legal 
right  of  the  directors  and  stockholders  to  make  the  surrender  with- 
out the  consent  of  the  bondholders  whose  mortgage  security  covers 
and  includes  the  franchises  of  the  corporation,  (2)  the  practical  im- 
possibility of  ascertaining  all  the  bondholders  and  acquiring  their 
consent,  and  (3)  the  erroneous,  though  perhaps  not  ill-founded,  con- 
ception of  the  value  of  such  franchises.  The  latter  reason  was 
advanced  in  but  few  instances  and  is  scarcely  tenable.  As  all  second- 
ary or  special  franchises  granted  directly  or  indirectly  by  the  legis- 
lature are  non-exclusive,  subject  to  eminent  domain  by  municipalities, 
and  resting  entirely  upon  the  good  faith  of  the  people  of  the  state, 
as  they  may  be  repealed  at  any  time  by  the  legislature,  I  can  see  no 
element  of  value  in  such  franchises  that  makes  them  a  more  desirable 
acquisition  of  a  public  service  corporation  than  the  practically  per- 
petual exclusive  franchises  provided  by  the  statute. 

The  fact  that  a  new  phrase,  "indeterminate  permit,"  ^  was  coined 
and  employed  in  the  act  to  denominate  a  franchise  when  used  in  its 
generic  sense,  that  is,  as  embracing  all  the  secondary  or  special  fran- 
chises granted  to  a  public  service  corporation,  either  directly  by  the 
state  under  general  legislative  provision  or  indirectly  by  the  state 

1  Note.  Sect.  1797111-1.  5.  The  term  "indeterminate  permit"  as  used  in  this  act 
shall  mean  and  embrace  every  grant,  directly  or  indirectly  from  the  state,  to  any  corpora- 
tion, company,  individual,  association  of  individuals,  their  lessees,  trustees  or  receivers 
appointed  by  any  court  whatsoever,  of  power,  right  or  privilege  to  own,  operate,  manage 
or  control  anj'  plant  or  equipment  or  any  part  of  a  plant  or  equipment  within  this  state  for 
the  production,  transmission,  delivery  or  furnishing  of  heat,  light,  water  or  power,  either 
directly  or  indirectly,  to  or  for  the  public,  which  shall  continue  in  force  until  such  time  as 
the  municipality  shall  exercise  its  option  to  purchase  as  provided  in  this  act  or  until  it  shall 
be  otherwise  terminated  according  to  law. 


COMMISSIONS  AND   BOARDS  361 

through  a  common  council  or  other  municipal  body  duly  authorized 
thereto,  has  had  a  deterring  effect  upon  such  corporations  and  not- 
withstanding the  legislature  has  again  opened  the  season  for  exchang- 
ing franchises  there  has  been  no  perceptible  change  in  the  attitude 
of  the  corporations  toward  the  proposition.  The  statement  often 
made,  that  until  there  has  been  a  judicial  interpretation  of  the  mean- 
ing and  scope  of  the  phrase  ''indeterminate  permit"  corporations  will 
hesitate  to  trade  their  rights  or  franchises  which  have  a  definite  mean- 
ing in  the  law  for  those  that  have  not  yet  been  defined  by  the  courts, 
does  not  appear  to  have  any  substantial  basis  for  support.  In  fact, 
the  statute  contains  as  explicit  a  definition  as  is  possible  to  make  and 
leaves  nothing  for  interpretation  or  explanation. 

As  the  utilities  are  generally  desirous  of  canceling  their  long  time 
discriminatory  contracts  with  municipalities  for  service  for  municipal 
purposes  and  those  with  individuals  for  private  purposes,  it  would 
have  been,  perhaps,  better  if  the  legislature  had  in  the  first  instance 
attached  less  importance  to  such  contracts  and  amended  every  fran- 
chise by  making  it  exclusive  and  practically  perpetual,  although  sub- 
ject to  termination  by  the  acquisition  of  the  physical  property  of  the 
utility  under  eminent  domain.  The  necessity  of  coining  a  new  phrase 
to  denominate  a  well-established  legal  right  or  privilege  might  have 
been  thus  avoided  or,  if  deemed  desirable,  might  have  been  employed 
without  causing  any  anxiety  on  the  part  of  those  whose  rights  were 
being  enlarged  rather  than  curtailed  by  the  amendment.  No  honest 
or  inteUigent  opposition  can  ever  be  brought  against  carrying  out  in 
some  satisfactory  manner  the  economic  purpose  designed  to  be  ac- 
complished by  the  pro\dsions  of  the  law  relating  to  franchises. 

In  considering  the  features  of  the  law,  hereinbefore  discussed,  in 
their  broader  aspects  it  would  appear  that  the  unbiased  mind  must 
necessarily  come  to  the  conclusion  that  the  system  of  state  regulation 
and  aid  provided  by  the  Public  Utilities  Law  of  this  state  is  capable 
of  producing  eventually  more  permanent  and  satisfactory  results 
than  any  system  of  local  control  that  can  be  conceived.  It  recog- 
nizes that  public  utilities  are  business  enterprises  requiring  a  high 
character  of  scientific  skill  as  well  as  business  ability  for  their  successful 
operation  and  management.  Any  public  control  which  ignores  this 
fact  must  of  necessity  fail.  Local  control,  as  commonly  practiced, 
consists  of  nothing  more  nor  less  than  spasmodic  attacks  upon  rates 
and  services  of  public  utilities  regardless  of  the  physical  conditions  of 
their  plants,  their  financial  needs  or  possibilities.  Because  of  local 
attacks  public  service  corporations  have  not  infrequently  yielded  to 
local  pressure  and  reduced  their  charges  for  the  sake  of  peace  when 
public  interest,  if  the  situation  had  been  properly  understood,  would 
have  been  best  served  by  maintaining  the  revenues  so  as  to  have 
enabled  them  to  make  improvements  by  adopting  new  inventions 


362  COMMISSIONS   AND   BOARDS 

and  thereby  rendering  better  service  at  a  permanently  reduced  cost. 
To  compel  a  public  utility  to  improvidently  curtail  expenditures  of 
operation,  neglect  proper  maintenance  and  improvements  and  make 
no  proxisions  for  depreciation  will,  in  the  end,  result  in  an  increased 
burden  upon  the  public.  The  time  will  come  when  these  omissions 
must  be  supplied  and  the  public  will  be  obliged  to  supply  them  or  go 
without  the  service.  To  meet  the  requirements  when  they  occur  is 
the  only  economic  method  that  can  be  adopted  in  the  administration 
of  a  public  utility.  That  public  regulation  which  does  not  deal  in- 
telligently with  the  business  interests  as  well  as  the  physical  property 
of  a  public  service  corporation  will  prove  disastrous  in  the  end. 


FACTORS  DETERMINING  A  REASONABLE  CHARGE  FOR 
PUBLIC   UTILITY   SERVICE 

AN    ADDRESS     AT    THE    ANNUAL    DINNER    OF     THE    WESTERN 

SOCIETY  OF   ENGINEERS,  HOTEL  LA   SALLE,   CHICAGO, 

JANUARY   7,  1914 

By  M.  E.  Cooley,  Dean  of  the  College  of  Engineering, 
University  of  Michigan 

(From  the  Journal  of  the  Western  Society  of  Engineers,  January,  1914) 

Probably  no  question  of  greater  importance  confronts  our  people 
to-day  than  the  relations  of  the  public  and  the  public  ser^'ice  cor- 
porations. I  refer  to  relations  of  a  domestic  character,  rather  than 
foreign,  those  which  affect  us  as  a  nation  considered  as  a  family  in 
which  the  interests  of  all  of  its  members  are,  or  should  be,  entwined, 
interwoven,  in  such  manner  that  whatever  is  good  for  one  is  good  for 
another. 

Naturally  in  treating  my  subject  I  shall  have  in  mind  ideals  which 
may  require  years  for  their  realization,  but  I  shall  hope  to  appeal  to 
you  with  arguments  based  so  firmly  on  actual  facts  that  I  shall  not 
be  accused  of  being  academic.  I  shall  endeavor  to  throw  upon  my 
subject  the  light  of  nearly  fifteen  years  of  experience  in  the  in\'estiga- 
tion  of  public  utility  properties,  and  I  shall  hope  to  leave  with  you 
the  impression  that  my  views  have  been  expressed  with  due  regard  to 
proper  perspective.  That  is  to  say,  I  shall  hope  to  avoid  being  accused 
by  any  one  of  even  appearing  to  favor  one  side  of  the  question  as 
against  the  other.  My  desire  is  to  speak  of  what  may  be  seen  from 
the  hilltop  of  any  one  who  will  divorce  himself  from  the  interests  of 
either  side,  and  try  to  look  upon  the  problem  with  unbiased  vision. 


COMMISSIONS  AND   BOARDS  2,^^ 

There  are,  of  course,  two  sides  to  this  question  as  there  must  be  in 
order  that  any  question  can  exist.  There  is  the  side  of  the  pubhc 
and  the  side  of  the  public  service  corporation.  To-day  they  are  wide 
apart.  They  are  wide  apart  for  one  principal  reason,  namely,  igno- 
rance. While  it  may  be  no  disgrace  to  be  ignorant,  it  is  disgraceful  to 
remain  ignorant  when  so  little  education  is  required  to  dispel  it.  The 
education  required  is  not  difficult ;  indeed,  it  is  \'ery  simple ;  but  the 
trouble  is  that  very  many  of  those  who  most  need  it  are  not  willing  to 
be  educated.  Various  motives  exist,  which  I  will  not  discuss  here, 
further  than  to  mention  that  chief  among  them  is  a  spirit  of  antago- 
nism, akin  to  revenge  on  the  part  of  the  public,  in  localities  w'here  the 
opportunity  exists  for  its  manifestation. 

It  is,  I  believe,  generally  considered  by  the  officers  of  public  service 
corporations  that  they  are,  or  rather  were,  themselves  responsible 
for  the  unfriendly  attitude  of  the  public  toward  them  which  is  now 
almost  general  in  this  country.  The  public  service  corporation  has 
in  the  past  proceeded  on  the  theory  that  the  words  public  service  had 
no  particular  meaning,  and  that  like  any  other  corporation  it  was  at 
liberty,  and  indeed  had  the  right,  to  make  as  much  money  as  possible 
out  of  its  business.  The  public  service  corporation  has  in  the  past 
ignored  the  fact  that  its  right  to  do  business  is  a  public  grant,  a  grant 
which  in  the  very  nature  of  it  precluded  others  from  engaging  in  the 
same  business  in  the  same  locality.  True,  in  theory,  at  least,  others 
might  be  admitted  to  the  field  and  thus  create  competition,  but 
practically  it  has  not  worked  out  that  way.  Ordinarily  there  is  not 
enough  business  for  two,  and  even  if  there  were,  great  inconvenience 
is  likely  to  result ;  as  for  instance  in  the  use  of  two  telephone  systems, 
two  waterworks  systems,  and  several  street  car  systems  in  the  same 
city.  It  is  much  to  the  advantage  of  the  public,  both  in  convenience 
and  expense,  to  have  a  single  utility  of  the  different  kinds  serve  it 
when  that  service  can  be  had  on  fair  terms. 

What  are  fair  terms?  That  is  what  is  partly  meant  by  the  words 
reasonable  charge  in  the  title  of  this  paper.  I  say  partly  meant.  In 
the  broad  sense  they  may  be  synonymous.  To  illustrate:  The 
service  rendered  by  a  public  ser\dce  corporation  may  be  very  poor 
without  any  good  excuse  for  it.  In  such  a  case  a  reasonable  charge 
would  be  less  than  when  the  service  was  entirely  satisfactory.  Care- 
less or  unintelligent  management,  or  a  desire  to  increase  the  dividend 
rate,  would  lead  to  this  result.  Again,  the  service  rendered  may  be 
very  poor  and  yet  be  the  best  possible  and  keep  the  business  alive ; 
that  is,  were  the  rates  higher  a  better  service  could  be  rendered.  This 
may  be  found  in  small  towns  where  the  extent  of  the  business  will  not 
support  anything  better.  Further,  the  service  may  be  very  unsatis- 
factory and  still  be  the  best  possible. to  render  regardless  of  rates; 
that  is,  physical  conditions  may  limit  the  ability  to  render  satisfactory 


364  COMMISSIONS   AND   BOARDS 

service.  This  may  be  found  in  large  cities,  an  example  being  a  street 
railroad  system  which  cannot  be  extended  except  by  building  ele- 
vated or  underground  systems. 

Fair  terms,  then,  means  fair  service,  or  the  best  possible  under  the 
conditions,  to  the  public  on  the  one  hand,  and  a  reasonable  charge 
for  that  service  to  the  corporation  on  the  other  hand.  They  are,  or 
should  be,  the  two  members  of  an  equation  which  are  equal  to  each 
other.  Like  an  equation,  given  the  service  demanded  and  certain 
other  factors  involved,  the  fair  rate,  or  the  reasonable  charge,  can  be 
readily  determined.  It  is  these  factors  we  come  now  to  consider. 
They  embrace,  first,  the  capital  investment  upon  which  the  interest 
return  is  made  either  in  the  form  of  interest  or  dividends,  or  both ; 
second,  the  operating  expenses  which  include  maintenance  and  repairs 
of  all  the  elements  of  the  physical  property,  and  taxes ;  third,  a  de- 
preciation fund  out  of  which  can  be  replaced  elements  of  the  physical 
property  which  are  worn  out,  or  have  become  obsolete,  so  that  they 
can  no  longer  be  used  economically ;  and,  fourth,  a  sinking  fund  to 
provide  for  the  loss  of  capital  due  to  depreciation,  or  the  difference 
between  the  cost  of  the  property  when  new  and  when  disposed  of  at 
the  expiration  of  its  franchise  life.  Let  us  take  them  up  in  order, 
capital  investment  first. 

It  should  be  understood  at  the  outset  that  no  capital  can  be  made 
available  for  a  public  utility,  or  for  any  other  business,  for  that  matter, 
without  a  sufficient  return  on  the  money  to  tempt  its  investment  in 
the  business.  Capital  obeys  the  law  of  supply  and  demand  like  any 
commodity.  Thus,  if  capital  be  invited  for  investment  in  a  service 
which  is  desired  by  the  public,  then  the  public  must  expect  to  pay 
the  price  in  the  form  of  interest  or  dividends  which  is  necessary  to 
secure  it. 

However  much  in  the  past  capital  may  have  been  tempted  into 
the  field  without  invitation  in  the  hope  of  large  returns,  those  days 
are  rapidly  disappearing ;  and  before  very  long,  if  not  now,  we  shall 
be  obliged,  not  only  to  extend  an  invitation,  but  to  offer  inducements 
to  bring  capital  to  our  door.  Those  inducements  must  be  not  only  a 
fair  return  on  the  capital  investment  but  a  welcome  guaranteed 
throughout  a  term  of  years.  Capital  may  be  compared  with  the 
guest  in  our  household.  While  she  bides  with  us  she  is  entitled  to  the 
treatment  accorded  to  a  guest.  She  may  have  worn  out  her  welcome 
but  at  the  same  time  have  become  indispensable  to  our  domestic 
affairs,  so  that  w^e  must  continue  to  suffer  her  presence.  We,  the 
public,  cannot  invite  the  guest  and  then  while  she  is  with  us  slap  her 
face ;  on  the  other  hand,  the  guest  cannot  with  impunity  proceed  to 
rob  us  once  she  is  in  our  home. 

There  is  at  present  a  very  natural  distrust  on  the  part  of  the  public. 
Capital  in  the  past  having  very  often  been  self-invited,  and  having 


COMMISSIONS  AND   BOARDS  365 

been  at  first  welcomed,  then  tolerated,  has  finally  worn  out  both  wel- 
come and  toleration.  The  logical  result,  one  might  think,  would  be 
to  get  along  without  capital.  But  of  course  that  would  be  impossible. 
Whether  the  utility  be  built  and  operated  by  the  public  or  by  a  cor- 
poration, capital  is  necessary.  It  is  true  that  for  a  municipally 
owned  utility,  capital  may  be  had  on  more  favorable  terms  with  the 
security  which  the  public  can  offer ;  but  it  does  not  follow  that  the 
service  rendered  would  be  had  at  correspondingly  low  rates  or  reason- 
able charges.  It  could  perhaps,  but  the  experience  of  the  past  favors 
the  belief  that  such  expectation  would  be  Utopian  rather  than  practical. 

The  time  is  coming,  if,  not  already  here,  when  it  will  make  no 
difference  whether  capital  be  invested  under  the  direct  security 
afforded  by  a  municipally  owned  utility  or  the  more  indirect  security 
afforded  by  a  franchise  to  a  corporation.  This  time  will  have  arrived 
when  the  public  comes  to  understand  the  elements  of  cost,  and  all  of 
them,  which  enter  into  the  construction  of  a  public  utility  plant. 
Those  elements  of  cost  are  the  same,  or  substantially  the  same, 
whether  the  plant  be  constructed  by  the  public  or  by  the  corpora- 
tion. The  public  must  have  a  board  intrusted  with  the  construction 
and  management  of  the  utility.  This  board  corresponds  practically 
to  the  corporation's  board  of  directors. 

The  board,  whichever  it  may  be,  becomes  the  agent  of  the  public. 
It  makes  the  preliminary  investigations,  employs  legal  counsel,  real 
estate  men  to  procure  the  necessary'  right  of  way,  conducts  condem- 
nation proceedings,  obtains  property  consents,  and  attends  to  all 
matters  connected  with  the  proper  launching  of  the  project.  It  em- 
ploys engineers  to  prepare  the  plans  and  specifications;  invites  bids, 
awards  the  contracts,  and  looks  after  the  work  during  the  construc- 
tion period.  It  makes  arrangements  for  the  necessary  funds  to  finance 
the  project,  the  necessary  working  capital,  and  finally,  after  the  work 
of  construction  is  completed,  puts  the  plant  into  operation. 

Before  its  work  has  been  done  completely,  the  business  must  be 
thoroughly  established,  that  is,  converted  from  an  inanimate  to  an 
animate  condition.  The  earnings  from  operation  must  as  speedily 
as  possible  be  brought  to  a  point  where  they  will  support  all  of  the 
expenses.  During  the  period  of  insufficient  earnings,  the  deficits 
must  be  cared  for.  When  the  earnings  become  sufficient  to  meet  all 
expenses,  including  interest  on  the  cost  of  the  property,  the  utility 
may  be  said  to  have  become  fully  a  going  concern. 

In  all  of  this  work  the  duties  of  the  board  or  city  officials  repre- 
senting the  public  or  of  the  officers  representing  the  corporation,  have 
been  the  same.  The  elements  of  costs  have  been  the  same.  The 
principles  involved  have  been  the  same.  The  only  dift'erence  has 
been  one  of  degree  on  some  of  the  items,  as  for  instance,  less  diffi- 
culty possibly  in  securing  rights-of-way,  and  more  favorable  terms  in 


366  COMMISSIONS  AND   BOARDS 

financing.  But  as  already  stated,  these  advantages  may  in  the  ul- 
timate results  be  more  apparent  than  real.  That  phase  I  have  no 
intention  of  discussing  in  this  paper. 

The  principal  cause  of  the  difference  of  opinion  between  the  public 
and  the  public  service  corporation,  as  I  have  come  to  see  it,  lies  in 
the  failure  of  the  public  to  comprehend  all  of  the  elements  of  cost 
entering  into  the  construction  of  a  public  utility  plant.  Not  only 
that  but  a  failure  also  to  understand  all  of  the  elements  of  expense 
which  must  be  incurred  in  operating  the  property  and  maintaining 
its  integrity,  once  the  plant  has  been  built  and  the  business  established. 
The  corporation  itself  is  only  beginning  to. understand  some  of  these 
things.  Its  oflEicers  intrusted  with  the  management  of  the  property 
have  been  obliged  to  make  the  best  of  things,  stri\ing  on  the  one  hand 
to  earn  the  di\idends  called  for  by  the  stockholders,  and  on  the  other, 
to  maintain  the  property  so  as  to  give  satisfactory  service.  With- 
out in  any  way  excusing  the  corporation  from  its  sins  of  the  past  or 
of  the  present  where  they  still  exist,  the  trouble  is  now  understood 
by  the  corporation,  partly  at  least ;  and  it  must  be  conceded,  I  think, 
that  just  at  present  the  fault  lies  more  with  the  public  than  with  the 
corporation.  Let  us  now  take  up  the  elements  of  cost  constituting 
the  capital  investment. 

It  will  be  easier  of  understanding  if  individuals  will  consider  them- 
selves a  party  to  the  enterprise.  Assume,  for  instance,  that  you  are 
one  of  a  number  of  men  brought  together  to  consider  the  building  of 
a  public  utility  property.  What  is  the  first  step?  Naturally  you 
will  all  want  to  know  whether  the  project  is  feasible.  This  will  always 
involve  preliminary  investigations,  the  sounding  of  public  sentiment 
to  know  to  what  extent  the  proposed  service  would  be  demanded, 
what  concessions  would  have  to  be  obtained  in  the  matter  of  property 
consents  and  the  conditions  under  which  a  franchise  could  be  obtained. 
If  these  inquiries  have  resulted  favorably,  the  next  step  would  be  to 
employ  engineers  to  look  over  the  field  and  make  preliminary  esti- 
mates of  cost  and  determine  upon  the  feasibility  of  the  project.  With 
the  information  thus  far  accumulated,  the  bankers  must  be  consulted 
to  determine  whether  the  necessary  money  can  be  had.  At  this 
point  the  project  may  fall  through  as  there  may  not  be  a  sufl&cient 
promise  of  financial  return  to  induce  capital  to  come  into  the  enter- 
prise. 

All  of  this  preliminary  investigation  has  involved  expense  which 
must  be  borne  by  someone.  It  may  run  from  0.2  to  0.5  per  cent  of 
the  cost  of  the  proposed  property.  In  case  of  failure  to  go  further 
it  would  fall  upon  the  individuals  taking  part  in  the  investigation. 
They  have  gambled  and  lost.  But  should  the  future  promise  be  great 
enough  to  interest  capital  mildly,  let  us  say,  then  the  bankers  might 
be  induced  to  gamble  a  bit,  and  by  being  gi\-en  sufficient  odds  in  the 


COMMISSIONS   AND   BOARDS  367 

way  of  discount  on  bonds  and  blocks  of  capital  stock  depending  for 
their  value  on  future  earnings,  be  induced  to  come  in.  The  less  of 
gamble  there  may  be,  the  less  the  odds  demanded  by  the  banks ;  but 
at  the  present  time  these  keepers  of  the  vital  life  of  all  business  enter- 
prises must,  like  the  well-fed  trout,  have  bait  of  some  form  on  the 
hook  to  interest  them  at  all.  Not  so,  however,  with  the  rank  and 
file  who,  like  the  hungry  bullhead,  bite  at  anything,  even  in  the  dark, 
if  only  the  light  of  a  candle  be  exposed  to  show  in  the  faintest  outline 
the  nature  of  the  bait.  But  public  utility  properties  for  the  most 
part  are  not  financed  by  the  rank  and  file,  but  by  bankers  and  trust 
companies.  It  is,  therefore,  a  real  "condition,  and  not  a  theory," 
which  confronts  the  promoter  when  he  seeks  to  finance  a  proposition. 

If,  finally,  the  preliminary  work  has  resulted  in  the  determination 
to  proceed,  there  comes  the  organization  of  the  company,  the  employ- 
ment of  legal  counsel  to  draw  up  the  necessary  papers,  the  procuring 
of  the  franchises,  the  obtaining  of  the  necessary  property  consents, 
the  securing  of  the  right  of  way  by  purchase  or  otherwise,  the  em- 
ployment of  engineers  to  make  the  final  surveys,  prepare  the  plans  and 
specifications,  the  bidding  and  award  of  contracts.  The  actual  work 
of  construction  then  begins. 

It  is  at  this  point  that  the  public  conceives  the  cost  of  the  property 
to  begin ;  and  for  the  reason  that  the  average  citizen,  skilled  as  he 
may  be  in  the  work  of  his  own  pursuit,  has  little  or  no  knowledge  of 
the  skill  required  in  another's  pursuit.  Yet  this  average  citizen  must 
be  consulted  because  the  project  is  a  public  utility.  It  furnishes  him 
heat,  light  and  power,  transports  him  to  his  business,  and  provides 
him  with  other  fixed  necessities  of  life.  This  being  so,  let  the  con- 
dition be  met,  and  first  of  all  let  this  average  citizen  be  educated  to 
understand  the  requirements  which  must  be  met  if  he  is  to  be  fur- 
nished these  necessities  of  our  modern  civilization.  Once  he  under- 
stands, there  will  not  be,  so  far  as  he  is  concerned,  any  further  trouble. 
The  average  citizen  is  fair  minded,  and  asks  for  only  the  square  deal. 

There  is,  however,  another  type  of  citizen  who,  however  much 
explaining  there  may  be,  persists  in  seeing  things  his  own  way.  He 
may  be  a  self-appointed  guardian  of  the  people's  interest ;  sincere 
enough  and  honest  enough,  but  too  often  his  zeal  results  in  confusion 
of  understanding,  if  not  perniciousness.  Another  t)^e  belongs  to  the 
political  class.  He  sees  gain  in  one  form  or  another,  if  he  can  keep 
alive  the  troubles  between  the  public  and  the  public  service  corpora- 
tion. 

There  is  no  greater  service  to  be  rendered  the  people  of  our  coun- 
try to-day  than  that  which  could  be  rendered  by  the  newspapers  if 
they  would  but  go  at  this  matter  with  the  idea  of  acquainting  their 
readers  with  the  facts  on  both  sides.  I  mean  that  they  should  not 
treat  the  quarrels  between  the  public  and  public  service  corporations 


368  COMMISSIONS  AND   BOARDS 

as  items  of  news  merely,  but  detail  men  on  their  staffs  to  make  a  study 
of  the  questions  involved,  bringing  to  their  aid  the  skill  of  the  account- 
ant, the  engineer,  the  manager,  the  public  officers  intrusted  with  the 
affairs  of  these  corporations,  the  business  man,  and  the  man  who  has 
devoted  a  lifetime,  it  may  be,  to  a  study  of  this  class  of  problems. 
This  work  should  not  be  done  in  a  haphazard  manner,  but  system- 
atically and  with  one  object  in  view,  namely,  to  bring  about  as  speedily 
as  possible  a  clear  understanding  of  all  the  facts  on  both  sides.  Such 
a  work  by  our  newspapers  would  not  only  add  to  the  sum  total  of 
our  happiness,  but  promote  the  prosperity  and  welfare  of  the  com- 
munities which  they  serve.  I  sometimes  wonder  why  the  proprietors 
of  newspapers  do  not  see  that  their  own  business  is  in  the  nature  of  a 
public  utility,  morally  at  least. 

It  is  perhaps  unnecessary  to  refer  in  detail  to  all  of  the  different 
items  entering  into  the  cost  of  the  physical  property  of  a  public  utility. 
Such  items  as  the  following  are  in  general  capable  of  being  classified 
in  an  inventory,  and  are  readily  understood  :  Land  for  railroad  rights- 
of-way,  electric  transmission  lines,  and  pond  flowage;  land  for  the 
many  kinds  of  buildings  required,  such  as  ofhce  and  station  buildings, 
round  houses,  car  barns,  power  houses  for  steam  and  hydraulic  plants ; 
and  land  for  reservoirs,  dams,  waterworks  and  gas  plants.  The 
buildings  themselves,  together  with  their  furnishings  and  fixtures. 
The  roadbed,  rails,  ties  and  bridges  of  a  railroad ;  and  the  locomotive, 
passenger  and  freight  equipment.  The  dam  structure,  water  wheels, 
and  generator  of  a  hydroelectric  plant.  The  boilers,  engines  and 
generators  of  a  steam  plant.  The  tunnels  and  pipe  lines  of  a  heating 
plant.  The  pumping  engines,  water  mains,  hydrants  and  distribu- 
tion system  of  a  waterworks.  The  machinery,  gas  holders,  and 
distribution  system  of  a  gas  works.  The  conduits,  manholes  and  dis- 
tribution systems  of  electric  lighting  and  power  plants.  The  switch- 
board, machinery  and  apparatus  of  a  telephone  exchange;  and  the 
wires,  pole  lines,  conduits  and  instruments  of  the  distribution  system. 
All  of  these  items,  and  vastly  many  more,  make  up  the  physical 
structure  of  public  utility  plants.  They  are  tangible,  that  is,  they 
can  be  seen,  counted,  measured,  weighed,  and  their  costs  determined. 
Materials  and  labor  are  the  principal  items  in  their  creation  and 
installation. 

The  plans  and  specifications  of  a  utility  plant  having  been  com- 
pleted, proposals  for  its  construction  are  invited.  The  contractor 
figures  the  cost  of  every  item  as  nearly  as  possible,  adding  various 
percentages  to  cover  contingencies,  that  is,  unforeseen  difficulties  of 
construction  and  oversights,  some  large  and  some  small.  He  adds 
the  costs  of  the  necessary  permits,  the  insurance  required  on  the  men 
employed  and  on  the  buildings  during  their  construction ;  and  finally 
he  adds  another  percentage  on  the  whole  for  his  profits.     The  pro- 


COMMISSIONS  AND   BOARDS  369 

priety  of  these  percentages  in  figuring  the  cost  of  work  in  advance  is 
so  apparent  as  to  cause  wonderment  that  any  question  should  ever 
have  arisen  as  to  the  equal  propriety  of  including  them  in  making  an 
appraisal  of  a  property  at  any  time  after  it  was  built.  Happily  this 
ignorance  concerning  many  of  the  physical  elements  has  been  dis- 
pelled, and  there  no  longer  is  any  question  of  allowing  the  necessary 
percentages  to  cover  contingencies,  insurance,  contractors'  profits, 
engineering  and  superintendence. 

In  amount  the  contingency  percentages,  varying  on  the  diff'erent 
things  from  2  to  20  per  cent  and  upwards,  may  be  assumed  to  aver- 
age not  less  than  10  per  cent.  One  half  is  usually  applied  directly 
to  the  items  themselves,  the  other  half  as  a  percentage  on  the  total 
cost  of  all  the  items.  Insurance  varies  from  0.5  to  i  per  cent.  The 
contractor's  profit  should  be  estimated  at  not  less  than  10  per  cent. 
Engineering  and  superintendence,  like  contingencies,  varies  with  the 
different  items  from  2  to  10  per  cent  and  over,  an  average  being,  say, 
5  per  cent.  One-half  is  applied  directly  to  the  items  themselves,  the 
other  half,  as  a  percentage  on  the  total  cost  of  all  the  items,  including 
contingencies  and  contractor's  profits.  If  the  insurance  has  not  been 
included  with  the  contractor's  costs  it  should  follow  after  engineering 
and  superintendence,  and  may  then  be  combined  with  taxes  in  a  per- 
centage varying  from  0.5  to  1.5  per  cent.  In  the  application  of  these 
percentages,  only  the  general  engineering  percentage  should  be  applied 
to  land,  the  cost  of  which  embraces  its  own  particular  expenses  of 
acquiring,  including  damages,  deeds  of  transfer  and  the  like. 

In  case  the  contract  has  been  awarded  to  a  general  contractor,  he 
may  sublet  the  different  parts  to  other  contractors,  each  of  whom 
includes  in  his  bid  contingencies  and  other  items  proper  for  his  par- 
ticular part  of  the  work  and  his  profits.  In  such  cases  the  cost  of 
the  plant  includes,  bssides  the  contingencies  and  profits  of  the  sub- 
contractor, similar  items  for  the  general  contractor.  A  general  con- 
tractor responsible  to  the  owners  for  the  success  of  all  building 
operations  would  probably  demand  and  receive  not  less  than  10  per 
cent  of  the  cost  of  the  entire  work  covered  by  his  contract ;  and  in- 
stances are  known  where  the  general  contractor's  profit  has  been 
large,  —  20  per  cent  and  more.  The  measure  of  his  profit  is  usu- 
ally determined  by  the  nature  of  the  work,  that  is,  the  difficulties 
and  uncertainties  involved.  The  building  of  the  Detroit  River 
tunnel  is  an  example  of  where  the  general  contractor  made  a  large 
profit ;  but  the  uncertainties  were  such  that  it  was  not  known  in 
advance  by  any  one  whether  his  profit  would  be  large  or  small,  or 
whether  there  would  not  be  an  actual  loss. 

Another  method  in  vogue  is  to  place  all  building  operations  in  the 
hands  of  an  engineering  firm  who  makes  all  surve_ys,  prepares  the  plans 
and  specifications,  and  superintends  the  work  from  start  to  finish, 


370  COMMISSIONS   AND   BOARDS 

making  a  charge  therefor  of  lo  per  cent  on  the  actual  cost  of  the 
work.  This  virtually  amounts  to  a  profit  of  lo  per  cent,  as  the  cost 
on  which  the  percentage  is  based  usually  includes  the  salaries  and 
wages  of  the  men  employed  in  the  engineering  work,  and  all  traveling 
and  office  expenses  as  well.  It  is  known  as  the  "cost  plus  a  percent- 
age" plan.  The  engineering  firm  may  be  likened  to  the  general  con- 
tractor with  this  difference :  The  former  takes  his  percentage  on 
actual  costs  determined  after  the  work  is  completed ;  and  the  latter, 
on  the  estimated  costs  made  before  the  work  is  begun.  Obviously 
the  uncertainties  involved  would  cause  the  general  contractor  to 
guard  himself  by  making  liberal  estimates. 

We  come  now  to  discuss  certain  other  expenses  chargeable  to 
capital,  but  which  are  not  so  well  understood.  Taxes  during  the  con- 
struction period  is  an  item  usually  overlooked  by  the  public.  Ob- 
viously, any  real  estate  acquired  by  a  corporation  for  public  utility 
purposes  would  be  taxed  the  same  as  similar  property  owned  by  an 
individual.  Taxes  not  infrequently  are  also  imposed  on  structures 
built,  even  before  any  use  is  actually  made  of  them.  One  very  com- 
mon error  of  the  public  is  to  assume  that  if  municipally  owned  there 
would  be  no  taxes  on  a  public  utility  property.  True,  there  would 
be  no  taxes  levied  directly  against  the  property,  but  there  would  be 
the  indirect  taxes  which  every  taxpayer  would  have  to  meet.  To 
illustrate :  A  public  service  corporation  has  to  pay  certain  taxes  on 
its  property,  and  they  may  be  very  large.  If  this  property  be  acquired 
by  the  city,  it  bears  no  taxes.  The  same  amount  of  money  being  re- 
quired to  meet  the  expenses  of  government,  after  as  before,  it  follows 
that  the  citizens  must  make  up  the  amount  formerly  paid  by  the  cor- 
poration. If,  however,  the  earnings  remain  the  same,  there  will  be 
money  to  pay  the  taxes  out  of  earnings.  But  in  that  case  presumably 
the  rates  or  charges  for  ser\-ice  would  remain  the  same,  so  that  one  of 
the  alleged  benefits  of  public  ownership  would  disappear.  The  item 
of  taxes  is,  in  an  appraisal,  frequently  combined  with  insurance,  the 
amount  of  the  item  then  varying  from  0.5  to  1.5  per  cent. 

The  item  of  organization,  administration,  and  legal  expenses  usually 
follows  insurance  and  taxes  and  precedes  interest  during  construction. 
As  used  by  some  the  term  is  rather  elastic  in  being  made  to  include  all 
preliminary  expenses,  costs  of  promotion,  certificates  of  necessity, 
mortgage  tax,  fees  of  incorporation,  securing  of  franchises,  and  other 
general  expenses.  It  is  usually  expressed  as  a  percentage  varying 
from  2.5  to  5  per  cent,  being  applied  to  the  sum  of  all  preceding  costs, 
including  lands. 

There  arise  in  connection  with  many  utility  projects  certain  ex- 
penses which  have  come  to  be  known  as  costs  of  promotion  and  pro- 
moter's profits.  The  terms  themselves  are  rather  infrequently  used 
in  appraisals,  these  expenses,  if  considered  at  all,  being  included  under 


COMMISSIONS  AND   BOARDS  371 

costs  of  administration.  Administration  is  frequently  combined  ^vith 
organization  and  legal  expenses.  Whatever  may  be  said  for  and 
against  costs  of  promotion  and  promoter's  profits  in  the  sense  that 
they  represent  intangible  elements  in  the  nature  of  "rake-offs,"  there 
are,  in  a  totally  different  sense,  certain  expenditures  during  both  the 
construction  period  and  the  early  operative  period  which  are  legiti- 
mate and  necessary  and  best  described  as  promotion  costs.  In  the 
sense  that  a  promoter  forwards,  ad\-ances  and  encourages,  that  is, 
contributes  to  the  growth,  enlargement  and  excellence  of  a  utility 
project  desired  by  the  public,  there  can  be  no  question  that  such  costs 
are  entitled  to  consideration  in  determining  a  reasonable  charge  for 
service. 

As  to  a  promoter's  profit,  its  propriety  may  possibly  be  decided  by 
considering  to  what  extent  one  would  be  willing  to  contribute  to  a 
project,  independent  of  its  construction  cost,  to  procure  its  establish- 
ment ;  or,  were  a  utility  now  serA-ing  the  public  in  some  necessary 
capacity  to  be  taken  away,  to  what  extent  would  you,  as  one  served 
by  it,  be  willing  to  contribute  to  it  rather  than  lose  it.  Put  it  another 
way  :  A  man  says  he  can  make  a  success  of  a  utility  the  citizens  want, 
or  now  have.  You  doubt  its  possibility  but  consent  to  a  trial,  and 
he  does  it.  How  much  are  you  willing  to  compensate  him  for  his 
energy  and  brains?  This  implies  a  conception  free  of  bias,  broad- 
gauged  and  just  to  all  interests  concerned,  which  can  be  had  only  by 
being  fair  and  open-minded,  and  by  carefully  refraining  from  reach- 
ing any  conclusion  in  advance.  Ob\dousIy  no  percentage  could  be 
given  for  promoter's  profits,  but  appraisals  in  which  the  costs  of  pro- 
motion have  been  ascertainable  indicate  that  a  proper  charge  may  be 
as  much  as  2  per  cent.  Its  allowance  must  depend  on  circumstances, 
and  if  included  as  a  separate  item,  it  must  of  course  be  excluded  from 
administration  costs. 

Interest  during  the  period  of  constrviction  is  an  important  item 
often  overlooked  in  the  past.  This  means  simply  that  the  money 
which  has  been  expended  from  time  to  time  during  the  progress  of 
the  work  cannot  be  had  without  interest.  If  borrowed,  it  is  secure 
by  interest  bearing  notes ;  and  if  provided  through  the  sale  of  bonds, 
these  bonds  bear  interest.  Ordinarily,  the  interest  charge  is  based  on 
the  assumption  that  the  money  expended  starts  at  zero,  and  mounts 
uniformly  to  the  total  at  the  end  of  the  construction  period.  Thus 
the  rate  of  interest  is  applied  to  one-half  the  total  cost,  or  one-half 
the  rate  is  applied  to  the  total  cost.  The  construction  period  varies 
with  different  kinds  of  property,  one  year,  two  years  and  three  years 
being  common  lengths  of  time.  It  extends  to  the  time  when  the 
property  is  put  into  operation  and  begins  to  earn.  A  rate  of  6  per 
cent  per  annum  is  usually  assumed. 

The  management  of  a  public  utility  requires  a  home  for  its  officers 


372  COMMISSIONS  AND   BOARDS 

and  the  necessary  furniture  and  fixtures.  These  may  be  rented,  in 
which  case  the  rent  becomes  an  operating  expense ;  or  the  company 
may  own  its  ofi&ces  and  furniture  and  the  special  fixtures  needed  for 
its  business.  The  cost  then  becomes  a  capital  charge.  In  large 
properties,  street  and  steam  railways  particularly,  the  offices,  furni- 
ture and  fixtures  are  frequently  items  of  considerable  expense.  The 
cost  of  the  equipment  of  offices,  if  incurred  at  the  end  of  the  construc- 
tion period,  does  not  involve  interest  during  the  construction  period 
and  the  item  can  follow  this  interest.  If,  however,  it  has  come  earlier, 
its  cost  should  enter  into  the  sum  on  which  interest  during  construc- 
tion is  computed. 

Certain  necessary  stores  and  supplies  must  be  provided  ready  for 
use  in  emergencies  before  the  property  can  be  put  into  operation. 
After  the  plant  has  been  in  operation  for  a  time,  these  gradually  adjust 
themselves  as  to  quantities  of  the  various  items.  The  money  repre- 
sented by  stores  and  supplies  can  bear  no  interest  unless  it  be  incor- 
porated in  the  capital,  or  be  carried  as  a  floating  debt.  In  either  case 
the  interest  on  this  money  becomes  a  proper  charge  against  earnings. 
The  amoimt  considered  is  usually  an  average  taken  from  the  books. 

Another  item  which  occasions  surprise  is  working  capital.  By  this 
is  meant  the  money  which  must  always  be  available  to  pay  bills, 
labor  and  the  ordinary  expenses  of  operation,  and  which  in  the  very 
nature  of  the  fund  cannot  bear  interest  except  it  be  incorporated  in 
capital,  or  be  borne  as  a  floating  debt  with  interest  paid  out  of  earn- 
ings. In  either  case  it  becomes  a  charge  against  earnings,  and  there- 
fore takes  part  as  a  factor  in  determining  reasonable  rates  or  charges. 
As  between  a  capital  charge  and  a  floating  debt  it  may  be  pointed  out 
that  as  a  capital  charge  the  rate  of  interest  would  presumably  be  less 
than  as  a  floating  debt.  •  A  working  capital  is  as  necessary  an  expense 
as  any  other  in  the  production  of  a  public  utility  property.  Without 
it  the  business  for  which  the  property  was  constructed  could  not  be 
done.  How  often  have  we  known  of  the  failure  of  apparently  good 
business  enterprises  merely  for  the  lack  of  sufficient  working  capital? 
The  amount  of  working  capital,  like  stores  and  supplies,  is  usually  an 
average  taken  from  the  books. 

We  have  now  reached  the  point  at  which  the  property  has  been 
completed,  ha^^ng  considered  items,  all  of  which  may  enter  into  the 
capital  investment,  and  are  ready  to  take  up  the  second  principal 
factor,  namely,  operating  expenses.  With  a  working  capital  to  hand, 
the  property  has  been  put  into  operation.  It  begins  to  earn  but  a 
considerable  time  must  elapse  ordinarily  before  the  earnings  from 
operation  suffice  to  meet  all  of  the  expenditures.  By  all  of  the  ex- 
penditures I  mean,  interest  on  the  cost  of  construction,  taxes,  operat- 
ing expenses,  a  fund  out  of  which  the  expenses  of  maintaining  the 
integrity  of  the  property  can  be  borne,  and  another  fund  to  provide 


COMMISSIONS   AND   BOARDS  373 

for  losses  of  capital  at  the  end  of  the  franchise  period.  These  latter 
I  will  discuss  separately  under  the  head  of  "Depreciation"  and  "Sink- 
ing Fund,"  respectively.  During  this  period  of  insufficient  earnings, 
money  must  be  borrowed  to  make  up  deficits;  not  only  that,  but 
interest  must  be  paid  on  this  borrowed  money  until  the  time  that  the 
earnings  suffice  to  meet  all  expenses.  This  accumulated  deficit  con- 
stitutes what  may  be  termed  the  cost  of  procuring  a  going  concern ; 
in  other  words,  the  cost  of  establishing  the  business.  Were  the 
property  to  change  hands  at  the  time  the  earnings  just  suffice  to  pay 
all  expenses,  the  cost  of  establishing  the  business  would  become  the 
going  concern  value  of  the  property,  and  be  a  part  of  the  total  value 
of  the  property  as  a  going  concern  at  that  time.  It  is  a  difficult  element 
of  cost  to  determine  satisfactorily,  in  the  absence  of  well-kept  accounts, 
starting  with  the  property  itself. 

Not  infrequently  the  point  is  made  that  the  longer  it  takes  to 
establish  the  business,  that  is,  the  greater  the  sum  of  its  deficits  in 
earlier  years,  the  greater  is  its  value  as  a  going  concern.  This  apparent 
inconsistency  is  explained  by  the  fact  that  these  deficits  are  real  costs, 
and  necessary  if  the  utility  is  to  be  had  at  all.  The  utility  being  a 
necessity,  it  must  be  supported  by  the  public  the  same  as  any  other 
necessity.  The  cost  of  establishing  the  business  therefore  becomes  a 
factor  in  determining  reasonable  rates  or  charges.  This  cost,  like 
that  of  working  capital,  if  incorporated  in  the  interest  bearing  capital, 
becomes  less  of  a  burden  against  earnings  than  if  carried  as  a  floating 
debt. 

Probably  the  least  understood  factor  of  expense  in  connection  with 
a  public  utility  property  is  depreciation.  I  have  called  this  the  third 
factor  in  determining  a  reasonable  charge  for  public  utility  service. 
By  depreciation,  I  mean  the  money  required  to  be  paid  out  of  earnings 
in  order  to  meet  the  expenses  of  mamtaming  the  integrity  of  the 
property.  Depreciation  is  the  result  of  wear  and  tear  and  exposure 
to  the  elements.  It  also  includes  the  replacement  of  machinery  which, 
while  not  yet  worn  out,  has  become  obsolete,  that  is,  no  longer  eco- 
nomical to  use ;  or  if  still  economical,  no  longer  satisfactory  to  the 
public.  Depreciation  includes,  further,  the  wrecking  of  machinery 
due  to  accident,  or  to  the  acts  of  God. 

In  the  building  of  a  public  utility  property  all  of  the  elements  are 
originally  new,  but  as  time  goes  on,  these  elements  suffer  wear  or 
decay,  some  in  one  degree,  some  in  another.  When  an  element  has 
become  worn  to  a  point  where  it  is  no  longer  profitable  to  keep  it  in 
service,  it  is  replaced.  Thus  in  time  we  have  a  property  which  as  a 
whole  is  made  up  of  old  and  new  elements,  the  condition  of  which  in 
the  aggregate  is  something  less  than  the  first  cost  of  these  elements 
new.  In  the  very  nature  of  the  property,  it  is  impossible  ever  after 
it  is  once  started  to  have  present  in  it  the  full  100  per  cent  represented 


374  COMMISSIONS  AND   BOARDS 

by  all  new  elements.  It  can,  however,  be  maintained  in  some  con- 
dition less  than  loo  per  cent,  and  it  is  usual  and  necessary  to  main- 
tain it  at  a  point  which  will  enable  the  most  satisfactory  service  to  be 
rendered  with  the  smallest  expense  consistent  with  satisfactory  service. 
This  point  may  be  anywhere  between  80  and  90  per  cent,  depending 
on  the  kind  of  property. 

The  expense  necessary  to  keep  an  element  in  service  during  the 
useful  life  is  a  plain  operating  expense  classed  under  maintenance 
and  repairs,  and  is  not  included  under  depreciation  as  I  am  describing 
it.  The  depreciation  fund  is  properly  a  separate  fund,  maintained 
as  such  as  distinctly  as  an  interest  fund.  It  is  the  fund  which  insures 
the  prolongation  of  the  life  of  the  property  indefinitely  and  always 
in  a  condition  to  render  satisfactory  service.  It  is  not,  however,  a 
fund  out  of  which  additions,  extensions  or  betterments  may  be  made, 
which  in  their  nature  constitute  additions  to  capital. 

Thus  understood,  depreciation  becomes  a  factor,  and  indeed  a 
very  important  factor  in  determining  reasonable  charges  for  public 
utility  service.  Unhappily,  the  practice  of  providing  this  fund  is  not 
uniform  with  the  different  utilities ;  not  uniform  either  in  principle 
or  practice.  It  has  long  been  common  for  some  utilities,  railroads 
for  instance,  to 'wear  down  in  lean  years  and  build  up  in  fat  years. 
Thus  the  condition  of  the  property  is  not  maintained  in  some  uniform 
condition  expressed  as  a  definite  percentage  of  the  cost  of  all  new 
elements,  as  for  example,  80  per  cent,  but  may  vary  all  the  w^ay  from 
75  per  cent  to  85  per  cent. 

It  is  commonly  believed  by  the  public  that  a  utility  property  should 
not  be  permitted  to  earn  on  more  than  the  so-called  present  value  of 
its  physical  elements,  that  is,  their  cost  new,  less  depreciation,  say  80 
per  cent  of  the  cost  new  or  less.  As  bearing  on  this,  I  have  pointed 
out  that  the  property,  which  by  means  of  a  proper  depreciation  fund 
can  be  maintained  at  some  definite  percentage  which  enables  it  to 
render  satisfactory  service,  has  cost  100  per  cent.  That  is,  the  80 
per  cent  property  cannot  be  had  at  all  without  expending  the  100  per 
cent.  Thus  in  order  to  have  an  80  per  cent  physical  condition,  we 
must  have  a  capital  charge  of  100  per  cent.  From  this  it  becomes 
apparent  that  in  determining  a  reasonable  charge  we  must  base  it 
not  on  the  percentage  which  represents  condition,  but  on  the  cost  of 
the  property  which  cannot  be  maintained  economically  above  an  80 
per  cent  condition. 

If,  however,  it  be  insisted  that  only  that  percentage  of  the  total 
cost  which  is  represented  by  the  maintained  condition  of  the  property 
can  bear  an  interest  return,  the  loss  of  capital  and  interest  thus  in- 
curred must  be  provided  for  out  of  earnings  in  another  way,  namely, 
by  a  sinking  fund.  This  then  is  the  fourth  factor  determining  a  reason- 
able charge  for  public  utility  service.     It  is  to  be  borne  in  mind  that 


COMMISSIONS  AND   BOARDS  375 

in  this  entire  discussion  I  am  assuming  only  actual  costs  in  the  capital 
investment,  and  only  such  an  interest  rate  as  will  induce  the  invest- 
ment of  the  capital  in  the  utility.  At  the  end  of  the  franchise  period 
it  is  necessary  to  make  good  both  principle  and  interest. 

The  importance  of  this  sinking  fund  and  its  magnitude  depend  on 
the  attitude  of  the  public  towards  the  utility  company.  The  public 
service  corporation  works  under  a  franchise,  which  is  simply  a  grant 
by  the  public  of  the  right  to  do  business.  With  certain  kinds  of  util- 
ities the  franchise  is  perpetual ;  with  others,  the  life  is  limited  to  a  defi- 
nite period,  say,  30  years.  In  some  states,  Wisconsin  for  instance, 
indeterminate  franchises  are  granted;  that  is,  franchises  which  can 
be  called  in,  or  surrendered  at  any  time,  subject  to  control  by  the 
Railroad  Commission  of  that  state.  In  the  case  of  a  limited  franchise 
under  which  the  utility  company  must  cease  operations  and  close  up 
its  business  at  the  end  of  a  definite  period,  the  company  must  make 
not  only  enough  to  pay  the  interest  on  the  cost  of  the  plant  and  main- 
tain it  always  in  condition  to  render  the  service  demanded  by  the 
public,  as  well  as  the  operating  expenses,  including  taxes,  insurance 
and  repairs,  but  also  an  additional  amount  to  cover  whatever  part  of 
the  plant  must  be  sacrificed  at  the  end.  This  means  a  sinking  fund 
to  retire  portions  of  the  cost,  if  not  the  entire  cost.  In  other  words, 
the  company  must  earn  enough  during  its  life  to  pay  back  whatever 
part  of  the  principal  has  to  be  sacrificed,  as  well  as  the  interest  on  the 
principal,  in  addition  to  maintaining  and  operating  the  plant  satis- 
factorily during  the  franchise  life. 

This  sinking  fund  is  not  always,  indeed  I  may  say,  is  not  generally 
kept  as  a  separate  account  in  this  country,  but  is  taken  out  in  the 
form  of  distributed  earnings  from  year  to  year  in  excess  of  the  amount 
normally  required  as  interest  on  the  cost.  Not  infrequently  what 
appears  as  an  abnormally  large  dividend  will  on  analysis  be  found  to 
be  only  sufficient  in  the  end  to  make  good  to  the  investor  both  the 
interest  on  his  money  and  the  principal  sacrificed  when  the  business 
is  closed  out. 

It  should  be  clear  from  this  that  in  general  a  long  term  franchise  is 
more  favorable  to  the  public,  so  far  as  charges  for  service  are  con- 
cerned, than  a  short  term.  To  illustrate :  assume  that  the  plant 
must  be  sold  for  what  it  will  bring  as  scrap  or  second-hand  material ; 
the  difference  between  its  cost  and  sale  value  must  be  made  up  out 
of  earnings  during  the  life  of  the  franchise.  Thus,  if  the  franchise  life 
be  short,  say  25  years,  the  sinking  fund  annuity  must  be  much  larger 
than  if  the  life  be  50  years.  No  annuity  is  required,  when  the  life  is 
perpetual.  No  doubt  longer  term  franchises  will  be  granted  in  the 
future,  particularly  now  that  the  control  of  them  is  being  lodged  by 
the  states  in  public  service  commissions. 

I  am  not  discussing  in  this  paper  conditions  which  have  existed  in 


376  COMMISSIONS   AND   BOARDS 

the  past,  or  may  exist  now,  in  connection  with  old  properties,  but  am 
confining  myself  to  fundamental  things,  those  which  should  guide  us 
in  our  future  relations ;  those  relations  which  will  come  to  exist  when 
the  public  service  corporation  is  permitted  to  earn  only  enough  on 
its  investment  to  bring  capital  into  the  field ;  that  is,  the  critical  con- 
dition, as  it  were. 

There  remains  for  me  only  one  more  topic,  and  this  I  have  put  off 
until  the  last,  always  shying  at  it  and  going  around  when  possible.  I 
refer  to  discounts  on  securities.  This  I  have  found :  no  bond  house 
will  even  consider  financing  a  public  service  corporation  without  a 
bond  discount.  I  refer  particularly  to  utilities  built  and  operated 
under  a  limited  franchise.  It  will  have  to  be  a  good  property  to 
secure  better  than  15  per  cent  discount.  It  is  an  excellent  property 
which  commands  as  low  as  10  per  cent  discount.  The  best  discount 
I  have  ever  come  across  in  my  own  investigations  is  8  per  cent.  This 
does  not  apply  to  municipalities,  however,  at  least  not  to  the  same 
extent. 

The  simple  conclusion  is  that  if  the  pubHc  utility  is  a  necessity  and 
the  money  for  it  is  obtained  in  the  usual  way,  one  element  of  cost  is 
the  discount  on  the  bonds,  which  in  effect  starts  the  property  off  with 
some  water  in  its  securities.  It  is,  or  is  not,  water,  as  you  view  it. 
Anyhow  it  is  necessary  in  the  ordinary  way  of  financing  properties. 
Thus  we  are  obliged,  in  determining  a  reasonable  charge  for  public 
utility  service,  to  consider  not  merely  the  actual  cost  as  I  have  pre- 
viously given  it,  but  something  more,  namely,  the  face  of  the  securi- 
ties which  command  an  interest  return.  Opinions  differ  on  whether 
it  is  better  for  this  discount  to  be  absorbed  as  a  capital  charge  or  carried 
as  an  interest  charge.  So  far  as  the  purpose  of  this  paper  is  con- 
cerned it  is  not  material,  as  in  either  case  there  must  be  a  charge 
against  earnings  to  take  care  of  the  discount. 

It  will  be  convenient  to  bring  together  the  several  elements  which 
take  part  in  determining  a  reasonable  charge  for  public  utility  service. 
Not  all  of  them  take  part  at  the  same  time  necessarily,  for  some  may 
appear  in  one  case  and  not  in  another ;  or  several  may  be  combined 
in  a  single  item.  In  a  general  way,  and  in  a  somewhat  natural  order, 
they  may  be  summarized  as  follows  : 

I.   Capital  Investment 

1.  Preliminary  costs  covering  investigations  as  to  feasibility  of 
project.^ 

2.  The  physical  property;  the  several  items  making  up  the  whole 
arranged  in  order,  each  affected  with  its  proper  allowances  to  cover 

1  Organization,  promotion,  administration,  and  legal  expenses,  engineering  and  super- 
intendence during  construction,  which  are  distributed  over  the  whole  period  of  construc- 
tion, are  more  conveniently  placed  later  in  the  schedule. 


COMMISSIONS  AND   BOARDS  377 

contingencies,  special  engineering,  and  other  costs  peculiar  to  the 
item ;  land  first,  followed  by  clearing  and  grubbing,  then  the  various 
structures  and  equipment ;  sub-contractor's  profits  included  with  the 
separate  items. 

3.  General  contingencies  applicable  to  the  property  as  a  whole  as 
distinguished  from  special  contingencies  applicable  to  particular  items. 

4.  General  contractor's  profits ;  or,  the  profits  to  an  engineering 
firm  building  the  property  on  the  "cost  plus  a  percentage"  plan. 

5.  General  engineering,  and  superintendence  during  construction. 

6.  Insurance  and  taxes. 

7.  Organization,  administration  and  legal  expenses. 

8.  Cost  of  promotion  and  promoter's  profits. 

9.  Interest  during  the  construction  period. 

10.  Office  furniture  and  fixtures. 

11.  Stores  and  supplies. 

12.  Working  capital. 

II.  Operating  Expenses 

13.  Operating  expenses  per  se;  that  is,  salaries,  wages,  fuel  and 
other  supplies,  repairs  and  upkeep ;  all  expenditures  required  in  ren- 
dering the  service  of  the  utility,  including  insurance  and  taxes. 

14.  Interest  on  the  capital  investment  (the  actual  cost  of  the 
property),  i.e.,  interest  on  securities  which  must  be  paid  regularly. 

15.  Interest  on  floating  debts;  this  may  include  the  discount  on 
bonds,  and  the  cost  of  financing,  if  these  have  not  been  incorporated 
with  the  capital. 

16.  Cost  of  establishing  the  business ;  the  sums  of  money  required 
to  be  borrowed,  with  interest  on  the  same,  to  make  good  the  differ- 
ences between  the  earnings  and  expenditures  up  to  the  time  the 
earnings  become  sufficient  to  meet  all  expenditures.  This  may  be 
made  a  capital  charge,  or  carried  as  a  floating  debt  to  be  paid  out  of 
future  earnings. 

III.  Depreciation  Fund 

17-  The  regular  contribution  to  the  depreciation  fund,  out  of 
which  the  integrity  of  the  property  is  to  be  maintained. 

IV.   Sinking  Fund 

18.  The  annuity  required  to  retire  such  portions  of  the  securities 
as  may  be  necessary  at  the  expiration  of  the  franchise  life  of  the 
property,  in  order  that  the  investor  may  receive  back  his  entire  prin- 
cipal when  the  business  is  closed  out. 

It  will  surprise  everyone  not  familiar  with  the  cost  of  building 


378  COMMISSIONS  AND   BOARDS 

public  utility  plants  to  learn  that  the  so-called  overhead  charges  are 
in  the  aggregate  a  large  percentage  of  the  costs  of  labor  and  the 
material  things  entering  into  their  construction.  An  examination  of 
the  various  percentages  mentioned  in  discussing  the  elements  of  cost, 
omitting  items  i,  4,  8,  15  and  16,  will  disclose  that  if  the  individual 
contingencies  of  construction,  special  engineering  charges,  and  con- 
tractor's profits  be  assumed  to  be  embraced  in  item  2,  the  total 
percentage  may  vary  from  12  to  25  per  cent;  and  if  these  inside 
percentages  be  added  to  the  outside,  or  general,  percentages,  the 
total  percentage  may  vary  from  30  to  60  per  cent. 

It  is  to  be  regretted  that  engineers,  and  others  who  have  had  ex- 
perience in  building  properties,  and  valuing  them  afterwards,  have 
not  done  more  towards  disseminating  knowledge  of  the  actual  con- 
ditions found  in  such  work.  We  should  then  be  much  further  along 
towards  the  mutual  understanding  which  must  exist  before  the  public 
and  the  public  service  corporation  can  get  together  on  common  ground. 
But  engineers  have  many  times  hesitated  to  use  the  larger  percentages, 
fearing  to  be  accused  of  favoring  the  corporation.  They  have  pre- 
ferred instead  to  secure  the  equivalent  of  them  by  using  larger  units 
of  costs;  or  have  used  the  smaller  percentages,  influenced  by  the 
feeling,  unconsciously  perhaps,  that  all  things  considered,  the  results 
were  fair  enough.  In  combining  the  judicial  with  their  engineering 
function,  they  have  unwittingly  only  obscured  the  issue.  All  too 
frequently  engineers  have  felt  obliged  to  exert  themselves  to  the 
utmost  in  favor  of  their  client,  leaving  the  interests  of  the  other  side 
to  be  fought  for  with  equal  solicitude  by  an  opposing  engineer.  Thus 
they  have  become  advocates.  This,  in  my  opinion,  is  not  the  best 
way  to  handle  these  momentous  problems.  It  would  be  far  better 
in  these  troublesome  times  to  throw  open  the  blinds  and  let  in  all  the 
light,  our  motto  being  Veritas  vincit. 


A  WORD   ABOUT  COMMISSIONS 

By  Herbert  J.  Friedman  of  the  Chicago  Bar 

(From  the  Harvard  Law  Review,  June,  19 12) 


At  the  outset,  the  question  arises  as  to  the  nature  of  the  duties  of 
a  commission.  If  a  commission  is  an  administrative  body  or  a  legis- 
lative body,  then  the  course  of  procedure  before  it  is  likely  to  take 
an  entirely  different  form  from  that  it  would  take  were  it  a  judicial 
body.  .  .  . 

Are  the  acts  and  the  doings  of  the  ordinary  commission  legislative, 


COMMISSIONS   AND   BOARDS  379 

executive,  or  judicial?  In  an  interesting  case  before  the  Supreme 
Court  of  the  United  States/  the  court  went  quite  extensively  into  the 
question  whether  the  dvities  of  the  State  Corporation  Commission  of 
Virginia  were  judicial  or  legislative.  The  constitution  creating  the 
commission  provided  that  it  should  have  the  power  and  be  charged 
with  the  duty  of  supervising,  regulating,  and  controlling  all  trans- 
portation and  transmission  companies  doing  business  in  the  state,  in 
all  matters  relating  to  their  performance  of  their  public  duties  and  their 
charges  therefor,  and  of  correcting  abuse  thereof  —  to  enforce  such 
rates,  charges,  rules,  and  regulations,  and  require  the  companies  to 
maintain  such  service  facilities  and  conveniences  as  might  be  reason- 
able, and  to  prevent  unjust  discrimination.  The  act  further  provided 
that  the  commission  should  have  the  power  to  administer  oaths, 
compel  attendance  of  witnesses,  and  to  punish  for  contempt.  There 
were  further  provisions  in  the  act  giving  it  certain  powers  to  enforce  its 
findings.     There  the  court,  in  its  opinion  by  Mr.  Justice  Holmes,  said : 

But  we  think  it  equally  plain  that  the  proceedings  drawn  in  question 
here  are  legislative  in  their  nature,  and  none  the  less  so  that  they  have  taken 
place  with  a  body  which,  at  another  moment,  or  in  its  principal  or  domi- 
nant aspect,  is  a  court  such  as  is  meant  by  Section  720.  A  judicial  inquiry 
investigates,  declares,  and  enforces  liabihties  as  they  stand  on  present  or 
past  facts  and  under  laws  supposed  already  to  exist.  That  is  its  purpose 
and  end.  Legislation,  on  the  other  hand,  looks  to  the  future  and  changes 
existing  conditions  by  making  a  new  rule,  to  be  applied  thereafter  to  all  or 
some  part  of  those  subject  to  its  power.  The  establishment  of  a  rate  is 
the  making  of  a  rule  for  the  future,  and  therefore  is  an  act  legislative,  not 
judicial  in  kind,  as  seems  to  be  fully  recognized  by  the  supreme  court  of 
appeals  (Com.  vs.  Atlantic  Coast  Line  R.  Co.,  to6  Va.  61,  64,  7  L.  R.  A. 
N.  s.  10S6,  117  Am.  St.  Rep.  983,  55  S.  E.  572),  and  especially  by  its  learned 
president  in  his  pointed  remarks  in  Winchester  &  S.  R.  Co.  vs.  Com.,  106 
Va.  264,  2S1,  55  S.  E.  692. 

The  court  cited  other  authorities  in  support  of  this  proposition. 

Chief  Justice  Fuller,  while  agreeing  with  the  conclusion  of  the  court, 
dissented  from  the  opinion.  He  was  of  the  belief  that  the  act  was  a 
judicial  one,  not  legislative.     In  the  course  of  his  opinion  he  said : 

The  Virginia  State  Corporation  Commission  was  created  and  its  func- 
tions, powers,  duties,  and  the  essentials  of  its  procedure  were  prescribed  in 
detail  by  the  Constitution  of  the  State  as  well  as  by  statute.  It  was  made 
primarily  a  judicial  court  of  record  of  limited  jurisdiction,  possessing  also 
certain  special  legislative  and  executive  powers.  When  it  proposed  to 
make  a  change  in  a  rate  of  a  pubHc  service  corporation,  or  otherwise  to  pre- 
scribe a  new  regulation  therefor,  the  commission  was  required,  sitting  as  a 
court,  to  issue  its  process,  in  the  nature  of  a  rule,  against  the  corporation 
concerned,  requiring  it  to  appear  before  the  commission  at  a  certain  time 

iPrcntis  vs.  Atlantic  Coast  Line,  211  U.S.  210,  29  Sup.  Ct.  67  (1908). 


38o  COMMISSIONS  AND   BOARDS 

and  place  and  show  cause,  if  any  it  could,  why  the  proposed  rate  should 
not  be  prescribed.  The  judicial  question  involved  on  the  return  to  such 
rule  was  whether  or  not  the  contemplated  rate  was  confiscatory,  or  other- 
wise unjust  or  unreasonable,  and  in  the  hearing  and  disposition  of  this 
question  the  proceedings  of  the  commission,  as  prescribed  by  law,  were  in 
every  respect,  the  same  as  those  of  any  other  judicial  court  of  record.  It 
issued,  executed,  and  enforced  its  own  writs  and  processes ;  it  could  issue 
and  enforce  writs  of  mandamus  and  injunction ;  it  punished  for  contempt ; 
and  kept  a  complete  record  and  docket  of  its  proceedings ;  it  summoned 
witnesses  and  compelled  their  attendance  and  the  production  of  ducuments ; 
it  ruled  upon  the  admissibility  of  evidence ;  it  certified  any  exception  to  its 
rulings;  and  its  judgments,  decrees,  and  orders  had  the  same  force  and 
effect  as  those  of  any  other  court  of  record  in  the  state,  and  were  enforced 
by  its  own  proper  processes.  It  was  not  subject  to  restraint  by  any  other 
state  court,  and  from  any  and  every  ruling  or  decision  by  it  an  appeal  lay 
to  the  supreme  court  of  appeals  of  the  state,  and  was  heard  upon  the  record 
made  for  and  certified  by  the  commission,  exactly  as  in  the  case  of  appeals 
from  any  other  court ;  and,  pending  the  decision  of  such  appeal,  the  order 
appealed  from  might,  by  supersedeas,  be  suspended  in  its  operation. 

Mr.  Justice  Harlan  was  also  of  the  opinion  that  the  act  of  the  Vir- 
ginia State  Corporation  Commission  was  in  every  sense  judicial.^ 

A  similar  question  arose  as  to  the  nature  of  the  acts  of  the  Public 
Service  Commission  in  the  State  of  New  York."^  There  the  court, 
after  reviewing  the  Prentis  case,  expressly  held  the  acts  of  such  a 
commission  judicial  and  not  legislative.  The  court  expressly  denied 
that  the  acts  of  the  commission  were  necessarily  non-judicial  because 
it  enforced  or  attempted  to  enforce  a  rule  of  conduct  for  the  future. 
It  pointed  out  that  a  judicial  decision  often  determines  in  advance 
what  future  action  will  be  a  discharge  of  all  existing  liabilities  or  obli- 
gations. Thus,  it  pointed  out  that  in  the  specific  enforcement  of  con- 
tracts which  are  to  extend  over  a  long  period  of  time  the  court  may 
dictate  the  details  of  performance.  The  court  also  indicated  that  in 
actions  for  divorce  or  separation  it  is  the  constant  practice  of  the 
courts  to  prescribe  for  the  custody  and  care  of  children  and  to  provide 
for  the  subsequent  modification  of  such  provisions  from  time  to  time 
as  circumstances  may  necessitate. 

On  the  other  hand,  there  have  been  a  vast  number  of  the  most 
eminent  authorities  that  have  held  that  the  functions  of  a  commis- 
sion are  purely  administrative.  In  giving  its  opinion  to  the  Massa- 
chusetts House  of  Representatives  as  to  the  constitutionality  of  the 
Civil  Service  Law  of  that  state  ^  the  Supreme  Judicial  Court  of  Massa- 
chusetts said :  ^ 

^  See  also  Interstate  Commerce  Commission  vs.  Cincinnati,  N.  O.  &  T.  P.  Ry.  Co.,  167 
U.S.  479,  17  Sup.  Ct.  896  (1896). 

2  People  ex  rel.  Railroad  vs.  Willcox,  194  N.  Y.  383,  87  N.  E.  517  (1909). 

3  Laws  of  1884,  c.  320. 

^Opinion  of  the  Justices,  138  Mass.  601  (1885). 


COMMISSIONS   AND   BOARDS  381 

The  object  of  the  statute  before  us  is  to  provide  for  a  board  of  commis- 
sioners, who  shall  make  rules  for  the  selection  of  persons  to  fill  such  ofitices 
in  the  government  of  the  Commomvealth,  and  of  the  several  cities  thereof, 
and  supervise  the  administration  of  such  rules.  We  think  the  Legislature 
has  the  constitutional  right  to  provide  for  the  appointment  of  such  com- 
missioners, and  to  delegate  to  them  the  power  to  make  rules,  not  incon- 
sistent with  existing  laws,  to  guide  and  control  their  discretion  and  the 
discretion  of  the  officers  of  the  State  or  of  the  cities  in  whom  the  appointing 
power  IS  vested.  This  is  not  a  delegation  of  the  power  to  enact  laws ;  it 
is  merely  a  delegation  of  administrative  powers  and  duties,  and  there  is  no 
provision  of  the  Constitution  which  prevents  the  Legislature  from  enacting 
that  such  rules,  when  duly  made,  shall  be  binding  upon  the  officers  and  citi- 
zens to  whom  they  apply,  and  that  they  may  be  enforced  by  suitable  penal- 
ties, as  provided  in  the  last  section  of  the  statute. 

The  United  States  Supreme  Court  apparently  agreed  with  this  view 
of  the  law  in  the  case  of  Stone  vs.  Farmers'  Loan  &  Trust  Company.^ 

In  the  case  of  the  City  of  Aurora  vs.  Schoeberlein  ^  the  Supreme 
Court  of  the  State  of  Illinois  passed  upon  a  clause  of  the  Civil  Service 
Act  of  1903  which  permitted  an  appeal  to  the  circuit  court  from  any 
decision  of  the  commission  discharging  an  employee,  and  which  per- 
mitted the  circuit  court  to  set  aside  the  findings  of  the  commission. 
The  court  held  that  this  section  of  the  act  was  unconstitutional  for 
the  reason  that  the  government  of  the  state  of  Illinois  was  divided  by 
the  constitution  into  three  separate  functions,  —  legislative,  execu- 
tive, and  judicial ;  that  the  removal  of  an  officer  in  a  civil  service  pro- 
ceeding was  an  executive  act,  and  that  the  allowance  of  an  appeal  to 
the  circuit  court  for  the  purpose  of  reviewing  an  executive  act  was 
vesting  the  circuit  court  with  executive  powers,  which  was  contrary 
to  the  constitution  of  the  state.^ 

And  the  United  States  Supreme  Court,  in  a  line  of  cases  where  the 
acts  performed  were  of  a  similar  nature,  has  held  them  to  be  adminis- 
trative. Thus  the  United  States  Supreme  Court,  in  a  decision 
rendered  by  Mr.  Justice  Brewer,  in  the  case  of  Burfenning  vs.  The 
Chicago,  St.  Paul,  etc.  Ry.  Co.,^  strongly  intimates  that  the  Land 
Department  in  passing  upon  the  question  whether  a  certain  tract  of 
land  w^as  swamp  land  or  not,  saline  land  or  not,  mineral  land  or  not, 
was  passing  upon  an  administrative  question.  In  the  case  of  Ameri- 
can School  of  Magnetic  Healing  vs.  McAnnulty,^  the  United  States 
Supreme  Court  held  that  the  Post  Office  Department,  in  passing  upon 
the  question  of  whether  certain  printed  matter  should  be  excluded 
from  the  mails  on  the  ground  that  it  was  fraudulent,  was  performing 

>  116  U.S.  307,  336,  6  Sup.  ct.  334,  338, 1191  (1886). 

«  230  111.  4g6,  82  N.E.  860  (1807). 

'  See  also  Wyman,  Public  Service  Corporations,  Sect.  1404,  p.  1235. 

*  163  U.S.  321,  16  Sup.  Ct.  1018  (1896). 

I"  187  U.S.  94,  108,  23  Sup.  Ct.  S3  (1902). 


382  COMMISSIONS  AND   BOARDS 

a  purely  administrative  act.  So,  too,  the  United  States  Supreme 
Court,  in  a  number  of  cases  involving  the  rights  and  powers  of  an 
immigration  inspector,  has  invariably  been  inclined  to  hold  that  his 
duties  were  administrative.  The  most  important  case  upon  this  sub- 
ject probably  is  United  States  vs.  Ju  Toy.^  In  that  particular  case 
the  petitioner  filed  a  petition  for  a  writ  of  habeas  corpus,  and  alleged 
that  he  was  about  to  be  wrongfully  deported  on  the  ground  that  he 
was  an  alien,  born  in  China,  while  in  fact  he  was  a  native-born  citizen 
of  the  United  States.  It  appeared,  however,  that  the  immigration 
inspector  had  taken  evidence  and  decided  that  the  petitioner  had  not 
been  born  in  the  United  States,  and  had  denied  him  admission  to  the 
United  States  and  ordered  him  deported.  It  would  be  hard  to  sup- 
port this  case  on  any  theory  other  than  that  the  act  of  the  immigra- 
tion inspector  was  an  administrative  one,  and  all  the  more  so  for  the 
reason  that  the  court  held  that  if  the  inspector  had  not  abused  his 
authority  the  act  of  the  department  must  be  absolutely  iinal  and 
conclusive,  and  that  even  though  the  question  of  citizenship  might 
be  raised,  the  court  had  no  power  to  review  such  finding. 

The  question  of  what  may  constitute  a  just  and  reasonable  rate  is 
necessarily  a  question  of  fact  to  be  determined  from  a  mass  of  intricate 
facts.  The  question  of  what  may  or  may  not  be  a  pure  food,  or  what 
may  constitute  a  pure  drug,  or  what  may  or  may  not  be  an  adulterated 
paint,  is  likewise  a  conclusion  of  fact  to  be  drawn  from  a  group  of 
facts  somewhat  less  complicated.  Whether  a  civil  service  employee 
has  disobeyed  the  rules  established  by  a  civil  service  commission  or 
the  head  of  a  department,  or  is  so  inefficient  in  his  w^ork  that  he 
should  be  discharged,  necessarily  is  a  similar  conclusion.  This  must 
likewise  be  true  of  the  duties  of  an  immigration  inspector  when  he 
passes  upon  the  question  of  a  man  seeking  admission  to  this  country 
as  an  alien  or  as  a  citizen.  It  would  seem  to  follow  that  the  dities  of 
all  these  bodies  are  one  and  the  same,  and  that  if  some  are  adminis- 
trative in  their  nature,  others  likewise  must  be  administrative.  These 
commissions  are  doing  the  duties  of  highly  specialized  juries.  They 
are  passing  upon  and  resolving  very  important  questions  of  fact.  Of 
course  if  a  commission  is  to  have  any  authority  whatsoever,  it  must 
have  the  right  to  compel  the  attendance  of  witnesses,  and  the  power 
to  punish  witnesses  or  to  cause  their  punishment  in  the  event  of  their 
refusal  to  attend.  It  must  be  taken  for  granted  that  if  the  acts  of  a 
commission  are  to  have  any  weight,  it  must  have  some  power  to 
enforce  its  findings.  Consequently,  the  reasons  that  some  of  the 
judges  of  the  United  States  Supreme  Court  gave  in  the  Prentis  case 
why  the  Virginia  State  Corporation  Commission  is  a  judicial  body 
do  not  seem  to  be  conclusive. 

It  should  be  noted  that  commissions  only  in  a  limited  sense  pass 

1 19S  U.S.  253,  25  Sup.  Ct.  644  (1905). 


COMMISSIONS  AND   BOARDS  383 

upon  property  rights.  They  do  not  decide  that  a  certain  property 
belongs  to  A  or  to  B.  They  do  say  that  certain  property  that  be- 
longs to  A  can  be  used  by  him  only  in  a  certain  way.  They  tell 
public  service  corporations  how  they  must  run  their  trains,  or  what 
rates  they  may  charge  in  the  sale  of  their  gas  or  electricity,  or  whether 
they  may  establish  new  rates  or  not.  They  tell  those  who  manufac- 
ture drugs  or  food  products  that  they  can  sell  them  only  if  they  do 
not  contain  certain  ingredients.  The  right  to  hold  an  office  may  or 
may  not  be  regarded  as  a  property  right,  but  even  in  those  states 
where  it  is  regarded  as  one,  nevertheless,  all  that  a  civil  service  com- 
mission does  is  to  see  to  it  that  the  man  who  holds  his  office  complies 
with  the  rules,  and  both  does  the  things  that  are  required  of  him  and 
abstains  from  doing  those  acts  that  are  forbidden.  In  other  words,  a 
commission  merely  passes  upon  the  method  that  a  man  must  adopt 
in  using  what  belongs  to  him. 

Every  legislative  body  has  the  power  to  enforce  obedience  to  its 
subpcena  and  to  compel  witnesses  to  testify  before  it.  The  land  com- 
mission, the  immigration  inspectors,  and  the  civil  service  commission, 
have  a  like  power.  Would  it  not  be  better  to  say  that  legislative, 
administrative,  and  judicial  bodies,  if  given  the  authority  by  the 
legislature,  may  compel  witnesses  to  come  before  them  and  to  attend, 
than  to  hold  that  because  such  a  body  has  that  power  it  is  therefore  a 
judicial  body? 

Nor  does  it  seem  clear  that  the  majority  of  the  court  in  the  Prentis 
case  was  correct  in  holding  the  commission  a  legislative  body.  The 
real  test  that  the  court  applied  was  that  the  commission  had  authority 
to  make  rules  and  regulations.  It  is  almost  fair  to  say  that  every 
civil  service  commission  in  the  United  States  has  this  same  power. 
Nevertheless,  it  is  apparent  that  the  civil  service  commission  in  its 
nature  is  administrative.  It  must  be  conceded  that  civil  service 
commissions  have  merely  taken  over  certain  powers  that  were  formerly 
given  to  the  administrative  head  of  the  government.  The  mayor  of 
a  city  or  the  governor  of  a  state  where  there  is  a  civil  service  act  has 
been  shorn  of  his  power,  for  the  most  part,  to  appoint  employees  or 
to  remove  them.  This  was  a  power  he  had  in  the  past.  Certainly 
in  the  past,  when  the  head  of  the  government  exercised  this  power,  it 
was  not  a  legislative  function.  The  legislature  has  taken  this  func- 
tion from  him  and  placed  it  in  the  hands  of  an  impartial  body.  It 
has  transferred  from  one  head  to  another  certain  administrative 
powers.  In  creating  civil  service  commissions  the  legislature  transfers 
the  employment  bureau  of  the  government  to  a  new  body.  Formerly 
the  mayor  or  governor  may  have  made  certain  rules  on  which  he 
based  the  appointment,  advancement,  and  removal  of  employees. 
This  is  exactly  what  the  civil  service  commission  does  after  it  is  once 
constituted.     But  in  the  nature  of  things  does  it  follow  from  the 


384  COMMISSIONS  AND   BOARDS 

mere  fact  that  the  law  gives  it  the  express  right  to  make  such  rules, 
that  therefore  the  legislature  made  it  a  legislative  body? 

A  court  is  given  the  right  to  make  its  rules,  to  guide  it  and  to  aid 
it  in  the  management  of  the  business  that  comes  before  it.  These 
rules  very  often  are  of  the  greatest  importance,  but  no  one  has  ever 
been  inclined  to  hold  that  because  a  court  may  make  rules  and  regu- 
lations governing  either  it  or  litigants,  it  is  therefore  a  legislative  body. 
It  therefore  does  not  seem  a  fair  test  to  hold  that  because  a  body  may 
make  rules  and  regulations,  it  is  a  legislative  body. 

If  a  commission  is  regarded  as  an  administrative  or  a  legislative 
body  on  the  one  hand  or  a  judicial  body  on  the  other,  not  only  may 
we  expect  to  see  a  different  development  in  the  method  of  its  pro- 
cedure and  in  the  rules  of  evidence  that  will  prevail  and  in  the  method 
of  reviewing  the  findings  of  its  decisions,  but  we  are  also  likely  to  see 
a  substantial  difference  in  the  nature  of  the  men  who  may  be  appointed 
to  constitute  such  commissions.  If  it  is  a  judicial  body,  then  it  seems 
to  be  highly  important  that  its  members  may  be  those  who  are  versed 
in  law,  in  order  that  they  may  correctly  interpret  the  law  of  the  land. 
If  it  is  a  judicial  body,  then  questions  of  law  are  more  likely  to  be 
emphasized.  If,  however,  the  commission  is  regarded  as  an  adminis- 
trative body,  then  the  legal  features  will  be  mmimized;  then  it  will 
not  be  necessary  that  those  who  may  be  its  members  be  versed  in  the 
substantive  and  adjective  law  of  the  land.  The  law  will  not  be  em- 
phasized. Men  then  will  be  more  likely  to  be  appointed  to  its 
membership  who  have  specialized  in  that  particular  part  of  our  in- 
dustrial and  social  life  that  the  commission  is  called  upon  to  regulate ; 
and  it  is  highly  important  that  this  should  be  so.  There  is  no  reason 
w^hy  a  lawyer  should  be  of  any  particular  aid  in  determining  what 
may  be  a  fair  and  remunerative  rate  for  a  public  service  corporation. 
There  is  every  reason,  however,  why  a  man  who  has  given  a  life 
study  to  gas,  electric  and  power  plants,  and  to  railroads  may  be  of  the 
greatest  assistance  in  establishing  a  fair  rate.  If  our  commissions  are 
to  be  of  value,  it  is  to  be  hoped  that  those  who  are  appointed  to  them 
will  be  experts,  and  that  in  reaching  their  conclusions  they  will  not  be 
hindered  by  the  vexatious  delays  of  legal  technicalities. 

An  administrative  body  will  probably  listen  to  hearsay  evidence 
and  give  it  such  weight  as  it  considers  it  worth.  It  may  dispense 
with  the  technical  proof  of  the  execution  of  documents  or  of  signa- 
tures ;  it  may  hear  witnesses  of  either  side  in  such  order  arid  at  such 
times  as  it  may  see  fit.  On  the  other  hand,  a  judicial  body  is  quite 
hkely  to  find  itself  bound  by  the  rules  of  evidence,  and  to  have  its 
decisions  and  findings  reversed  if  it  allows  improper  evidence  or 
refuses  to  permit  proper  evidence  as  determined  by  the  forms  and 
standards  of  law.  If  the  commission  is  regarded  as  an  administra- 
tive body,  the  conclusion  of  the  commission  on  the  question  of  fact 


COMMISSIONS  AND   BOARDS  385 

should  not  be  subject  to  review  by  a  court  unless  such  conclusion  in 
some  way  violates  a  law  of  the  land.  It  should  not  be  subject  to 
attack  because  in  the  eyes  of  the  court  it  may  or  may  not  have  been 
sustained  by  the  weight  of  the  evidence  presented.  In  the  event, 
however,  that  the  commission  is  a  judicial  body,  the  conclusion  is 
more  likely  to  be  set  aside  because  it  was  not  sustained  by  the  pre- 
ponderance of  evidence  that  may  have  been  introduced.  So,  too,  if 
the  functions  of  a  commission  are  regarded  as  judicial  on  the  one 
hand  or  executive  on  the  other,  there  is  likely  to  be  a  great  difference 
in  the  law  of  appealing  from  or  reviewing  the  findings  and  decisions 
of  the  commission.  The  law  seems  to  have  been  fairly  and  definitely 
settled  as  to  the  powers  of  the  court  to  review  and  set  aside  the  find- 
ings of  the  commission  where  it  has  been  held  to  be  an  administrative 
body.  It  is  not  clear,  however,  what  the  powers  of  a  higher  court 
may  be  in  reviewing  or  setting  aside  the  findings  of  a  commission 
where  it  is  regarded  as  a  judicial  or  legislative  body. 

In  the  case  of  Burfenning  vs.  Chicago,  St.  Paul,  etc.  Ry.,^  the  Su- 
preme Court  held  that  the  findings  of  the  land  commission  were  final 
and  could  not  be  reviewed.  The  court  said  in  that  opinion  that  it 
had  been  affirmed  over  and  over  again  that  in  the  administration  of 
the  public  land  system  of  the  United  States  questions  of  fact  are  for 
the  consideration  and  judgment  of  the  land  department,  and  that  its 
judgment  thereon  is  final.-  This  has  been  affirmed  by  a  long  series  of 
cases.^ 

So,  too,  in  the  immigration  cases,  where  the  immigration  inspector 
passes  upon  one  of  the  most  important  of  all  possible  questions  from 
a  governmental  point  of  view  —  that  of  citizenship  — -  it  has  been 
held  that  his  finding  is  not  subject  to  review.  In  the  case  of  United 
States  vs.  Tu  Toy,'*  the  immigration  inspector  had  held  that  the  peti- 
tioner was  an  alien,  born  in  China,  and  that  he  was  admitted  to  come 
into  the  United  States  in  violation  of  the  immigration  act,  and  there- 
fore had  ordered  him  to  be  deported.  The  court,  in  a  decision  rendered 
by  Mr.  Justice  Holmes,  there  held  that  the  decision  of  the  department 
was  final,  whatever  the  grounds  on  which  the  right  to  enter  the  coun- 
try was  claimed.  And  the  court  was  apparently  of  the  opinion  that 
the  decision  of  the  Secretary  of  Commerce  and  Labor  in  the  matter 
was  conclusive  and  not  subject  to  review.^ 

In  the  State  of  Illinois  this  point  has  been  established  by  innumerable 

•  163  U.S.  321,  16  Sup.  Ct.  1018  (1896). 

2  See  Bates  &  Guild  Co.  vs.  Payne,  194  U.S.  106,  24  Sup.  Ct.  595  (1Q04) ;  Heath  vs. 
Wallace,  138  U.S.  573,  n  Sup.  Ct.  380  (1891). 

'  See  American  School  of  Magnetic  Healing  vs.  McAnnulty,  187  U.S.  94.  23  Sup.  Ct.  35 
(1902) ;    Public  Clearance  House  vs.  Coyne,  194  U.S.  497,  508,  24  Sup.  Ct.  789  (1904)- 

•"  198  U.S.  253,  25  Sup.  Ct.  644  (1905). 

5  See  also  Edsell  vs.  Mark,  179  Fed.  292  (1910) ;  Lem  Moon  Sing  vs.  United  States,  158 
U.S.  538,  top  p.  544,  15  Sup.  Ct.  967  (189s) ;  United  States  vs.  Sing  Tuck,  194  U.S.  161,  24 
Sup.  Ct.  621  (1903);  Yamataya  vs.  Fisher,  189  U.S.  86,  23  Sup.  Ct.  611  (1903)- 


386  COMMISSIONS   AND   BOARDS 

decisions.  Thus  in  the  case  of  People  ex  rel.  Hayes  vs.  City  of 
Chicago  ^  the  court  said : 

It  makes  no  difference  whether  the  review  is  attempted  by  certiorari  or 
in  a  petition  for  mandamus ;  the  inquiry  on  our  part  and  on  the  part  of  the 
Circuit  and  Superior  Courts  is  limited  to  the  questions  whether  the  Com- 
mission had  jurisdiction  and  whether  it  followed  the  form  of  prodecure 
legally  applicable  in  such  cases.  This  is  what  the  Supreme  Court  said  in 
People  vs.  Lindblom,  182  111.  241,  and  we  have  repeated  in  the  Heaney  case 
and  in  other  cases. 

With  the  justice  or  injustice  of  the  Commission's  findings  and  sentence 
the  courts  have  nothing  to  do,  nor  with  the  severity  of  the  punishment, 
provided  always  that  the  findings  and  action  are  within  its  jurisdiction  and 
the  proceedings  regular. 

And  numerous  authorities  have  held  that  an  administrative  commis- 
sion is  not  bound  by  the  ordinary  technical  rules  of  evidence  or  pro- 
cedure.^ 

To  make  the  working  of  our  commissions  efficient  and  expeditious 
in  order  that  they  may  give  satisfaction  to  the  community  as  a  whole, 
and  be  a  benefit  to  our  times,  they  must  be  relieved  from  the  tech- 
nicalities and  delays  that  have  surrounded  our  courts.  Technicality 
has  been  the  mother  of  delay  in  our  courts.  In  this  great  branch  of 
our  government  the  law  is  at  the  threshold  of  new  interpretation.  It 
is  to  be  hoped  that  these  laws  will  be  interpreted  in  a  broad  and  com- 
prehensive manner  so  that  the  working  of  the  commission  will  not  be 
interfered  with,  and  may  result  in  the  greatest  possible  benefit  to  us. 

The  death-knell  of  the  laissez  /aire  doctrine  that  prevailed  at  the 
end  of  the  eighteenth  century  and  the  beginning  of  the  nineteenth 
century  has  been  sounded.  The  commission  has  been  instrumental 
in  burying  it.  It  is  developing,  as  a  public  servant,  the  technical 
man.  Commissions  have  been  created  where  technical  knowledge 
is  of  the  greatest  possible  value  and  necessity.  So  long  as  commis- 
sions continue  to  give  satisfaction,  we  must  expect  that  the  pubic 
will  demand  new  commissions  from  time  to  time  touching  new 
branches  of  industry  and  society.  And  so  we  are  rapidly  coming  to 
be  governed  by  commissions. 

1  142  111.  App.  103  (igo8). 

2  See  Joyce  vs.  City  of  Chicago,  216  111.  466,  75  N.E.  184  (1905) ;  City  of  Chicago  vs. 
People  e.-c  rel.  Gray,  210  111.  84,  92,  71  N.E.  S16  (1904) ;  People  e.x  rcl.  Maloney  vs.  Lind- 
blom, 182  111.  241,  244,  ss  N.E.  358  (1899) ;  People  e.x  rel.  Weston  vs.  McClave,  123  N.Y. 
512,  25  N.E.  1047  (1890);  Avery  vs.  Studley,  Mayor,  74  Conn.  272,  50  Atl.  752  (1901); 
State  ex  rel.  McDonald  vs.  Corteney,  23  S.C.  180  (1885).  An  analysis  will  show  that  the 
United  States  immigration,  land,  and  post  office  cases  are  to  the  same  efiect. 


COMMISSIONS  AND   BOARDS  387 

CONCLUSIVENESS   OF   ADMINISTRATIVE   DETERMINA- 
TIONS  IN  THE   FEDERAL    GOVERNMENT 

By  Thomas  Reed  Powell  of  the  Law  School  of 
CoLUMBLA.  University 

(From  the  American  Political  Science  Review,  August,   1907, 
Vol.  I,  pp.  583  ff.) 

The  Federal  Constitution  provides  that  no  person  shall  be  deprived 
of  life,  liberty  or  property  without  due  process  of  law,  and  vests  in 
the  Federal  Supreme  Court  the  ultimate  power  to  determine  what  is 
due  process.  The  legality  of  any  interference  with  person  or  property 
may  always  be  questioned  in  judicial  proceedings,  and  therefore 
depends,  in  the  last  analysis,  upon  its  conformity  to  a  rule  of  law 
laid  down  by  the  courts. 

The  most  usual  method  of  disturbing  the  individual  in  the  enjoy- 
ment of  his  personal  and  property  rights  is  by  judicial  proceedings, 
and  no  person  without  authority  of  some  branch  of  the  government 
can  constitutionally  imprison  him  or  permanently  appropriate  his 
property  by  any  other  means.  Conceivably,  the  doctrine  might  have 
obtained  that  the  government  and  its  agents  acting  in  official  capaci- 
ties must  also  have  recourse  to  the  courts  in  any  undertaking  affect- 
ing private  rights.  But  "due  process"  has  been  interpreted  as 
meaning  process  in  conformity  with  certain  fundamental  principles, 
rather  than  any  specific  and  required  mode  of  procedure.  The  courts 
have  held  that,  in  certain  instances,  the  government  may  interfere 
with  private  rights  through  the  action  of  its  administrative  agents, 
and  that  such  agents  may  be  vested  with  the  power  of  final  and  con- 
clusive determination  of  the  facts  on  which  their  action  is  based. 

There  are,  of  course,  two  limitations  upon  this  administrative  power, 
one  legislative,  the  other  judicial,  or,  more  correctly,  constitvitional. 
The  Constitution  itself  vests  in  the  executive  branch  of  the  govern- 
ment, power  to  act  in  several  matters  which  necessarily  have  an 
indirect  effect  upon  private  rights,  (Luther  vs.  Borden,  7  Howard  i), 
but  the  authority  to  determine  finally  questions  directly  affecting 
such  rights  must  depend  upon  express  legislative  enactment. 

Further,  it  remains  for  the  judiciary  to  determine  whether  such 
enactment  conforms  to  the  requirement  of  the  Constitution. 

No  thoroughly  satisfying  and  all  inclusive  definition  of  due  process 
has  ever  been  evolved.  We  can  best  understand  the  real  value  of  the 
constitutional  provision  by  ascertaining  what  deeds  may  be  done  in 
its  name. 


388  COMMISSIONS  AND   BOARDS 

An  examination  of  the  cases  will  show  the  theories  upon  which  this 
administrative  power  is  based,  the  distinction  between  determinations 
of  fact  and  the  decision  of  matters  of  law  or  application  of  rules  of 
law  to  determine  facts,  the  control  which  the  courts  retain  over  ad- 
ministrative procedure,  and  the  limitations  on  the  legislature  in  re- 
spect to  the  objects  for  which  the  power  may  be  conferred. 

I.   Determinations  affecting  Property 

The  leading  case  for  the  doctrine  that  "due  process  of  law"  does 
not  of  necessity  require  judicial  proceedings  is  Murray's  Lessee  vs. 
the  Hoboken  Land  and  Improvement  Co.,  i8  Howard  272  (1856).  It 
was  there  decided  that  Congress  might  clothe  the  administration  with 
power  to  determine  the  amount  due  from  a  government  officer,  and 
to  enforce  its  collection  by  means  of  a  distress  warrant,  issued  by  the 
solicitor  of  the  treasury,  without  resort  to  judicial  process.  The 
decision  was  reached  the  more  easily  because  such  summary  methods 
had  long  been  employed  and  the  legislative  construction  of  the  Con- 
stitution was  therefore  entitled  to  weight,  and  because  the  matter  was 
one  of  the  internal  law  of  administration,  where  discretionary  and 
arbitrary  power  in  superior  officers  is  essential  to  administrative  dis- 
cipline and  effectiveness.  "Due  process"  was  defined  as  having  the 
same  meaning  as  "the  law  of  the  land."  It  was  asserted  that  the 
law  of  the  land  had  long  authorized  more  summary  procedure  for 
the  collection  of  public  than  for  the  collection  of  private  debts,  and 
the  distinction  between  the  two  was  declared  to  be  founded  on 
"imperative  necessity." 

The  same  principle  w^as  applied  where  the  administration  was 
given  power  to  act  summarily  in  collecting  a  tax  from  a  citizen,  not 
a  member  of  the  administration,  by  a  warrant  issued  by  the  collector. 
Springer  vs.  U.S.,  102  U.S.  586  (1880).  Precedent  and  governmental 
necessity  were  both  invoked  in  support  of  the  decision.  The  court 
said :  "  The  power  to  distrain  personal  property  for  the  payment  of 
taxes  is  almost  as  old  as  the  common  law" ;  and,  further  on :  "The 
prompt  payment  of  taxes  is  always  important  to  the  public  welfare. 
It  may  be  vital  to  the  existence  of  a  government.  The  idea  that 
every  taxpayer  is  entitled  to  the  delays  of  Htigation  is  unreason.  If 
laws  here  in  question  involve  any  wrong  or  unnecessary  harshness, 
it  was  for  Congress,  or  the  people  who  make  congresses,  to  see  that 
the  evil  was  corrected.  The  remedy  does  not  lie  with  the  judicial 
branch  of  the  government." 

It  is  not  to  be  inferred,  however,  that  the  administration  is  subject 
to  no  judicial  restraints.  The  government  secured  title  through 
administrative  action,  but  to  obtain  possession,  it  was  compelled  to 
resort  to  judicial  proceedings,  in  which  such  questions  as  the  legaUty 


COMMISSIONS   AND   BOARDS  389 

of  the  tax,  the  authority  of  the  officer  and  the  ownership  of  the  land 
could  be  raised  and  passed  on  adversely  to  the  administration. 

In  other  instances,  the  finality  of  administrative  determinations  of 
fact  has  been  sustained  upon  the  principle  that,  when  a  matter  is 
confided  to  a  special  tribunal,  its  decision  within  its  authority  is  con- 
clusive on  all  others.  Johnson  vs.  Towsley,  13  Wall.  72  (1871).  In 
this  case,  the  expression  was  obiter,  because  the  court  reviewed  matters 
of  law  upon  which  the  administration  was  held  to  have  erred,  but 
the  opinion  is  of  value  as  an  indication  that  the  court  based  the  ad- 
ministrative power  on  the  general  rule  of  law  stated,  and  not  upon  an 
interpretation  of  the  statute.  In  Smelting  Co.  vs.  Kemp,  104  U.S. 
636  (1881),  the  principle  was  fairly  laid  down.  To  impeach  the 
validity  of  a  land  patent,  the  defendant  offered  in  evidence  the  record 
of  the  proceedings  in  the  land  department,  as  tending  to  show  that, 
owing  to  the  quantity  of  land  in  the  claim  and  the  method  of  locating 
it  in  order  to  obtain  the  patent,  the  land  office  had  no  authority  in  law 
to  proceed  as  it  did.  The  evidence  was,  however,  held  inadmissible, 
on  the  ground  that  the  decision  of  the  land  department  of  facts  within 
its  jurisdiction  was  final  and  not  to  be  reviewed  by  the  courts.  The 
patent  was  said  to  be  in  the  nature  of  an  official  declaration  by  that 
branch  of  the  government  to  which  the  ahenation  of  the  public  lands 
under  the  law  was  intrusted,  that  all  the  requirements  preUminary  to 
its  issue  had  been  complied  with. 

The  extent  of  the  doctrine  was  stated  by  Mr.  Justice  Field,  as 
follows : 

A  patent,  in  a  court  of  law,  is  conclusive  as  to  all  matters  properly  deter- 
minable by  the  land  department,  when  its  action  is  within  the  scope  of  its 
authority,  that  is,  when  it  has  jurisdiction  under  the  law  to  convey  the  land. 
In  that  court  the  patent  is  unassailable  for  mere  errors  of  judgment.  In- 
deed, the  doctrine  as  to  the  regularity  and  validity  of  its  acts,  where  it  has 
jurisdiction,  goes  so  far  that  if  in  any  circumstances  under  existing  law  a 
patent  would  be  held  valid,  it  wUI  be  presumed  that  such  circumstances 
existed. 

This  case  suggests  and  the  preceding  one  decides  that  this  power  of 
final  determination  is  confined  strictly  to  the  decision  of  those  facts 
within  the  jurisdiction  vested  by  the  statute  in  the  special  tribunal. 
Though,  by  an  erroneous  finding  of  fact,  the  department  may  grant 
a  patent  under  circumstances  not  contemplated  by  the  statute,  its 
action  when  based  on  a  misinterpretation  of  law  or  the  decision  of 
facts  not  committed  to  its  determination,  may  be  set  aside  in  judicial 
proceedings.  To  quote  again  from  Smelting  Co.  vs.  Kemp :  "  On  the 
other  hand,  a  patent  may  be  collaterally  impeached  in  any  action, 
and  its  operation  as  a  conveyance  defeated,  by  showing  that  the 
department  had  no  jurisdiction  to  dispose  of  the  lands ;   that  is,  that 


390  COMMISSIONS  AND   BOARDS 

the  law  did  not  provide  for  selling  them,  or  that  they  had  been  re- 
served from  sale  or  dedicated  to  special  purposes,  or  had  been  pre- 
viously transferred  to  others.  In  establishing  any  of  these  particulars 
the  judgment  of  the  department  upon  matters  properly  before  it  is 
not  assailed,  nor  is  the  regularity  of  its  proceedings  called  in  question ; 
but  its  authority  to  act  at  all  is  denied,  and  shown  never  to  have 
existed." 

In  these  cases  in  the  land  department,  however,  owing  to  the  fact 
that  two  conflicting  claims  may  both  be  based  upon  administrative 
determinations  and  because  of  the  jurisdiction  of  equity  in  several 
matters  dealing  with  real  estate,  there  must  always  be  a  wider  range 
of  judicial  review  than  in  the  other  administrative  determinations 
which  we  have  to  consider.  As  Mr.  Justice  Miller  queries  in  John-' 
son  vs.  Towsley,  cited  supra:  "What  conclusiveness  or  inflexible 
finality  can  be  attached  to  a  tribunal  whose  acts  are  in  their  nature 
so  inconclusive?"  In  referring  to  the  instances  where  equity  has 
reviewed  findings  of  fact,  he  repeats  the  doctrine  previously  estab- 
lished :  "  Undoubtedly  there  has  been  in  all  of  them  some  special 
ground  for  the  exercise  of  the  equitable  jurisdiction,  for  this  court 
does  not  and  never  has  asserted  that  all  the  matters  passed  upon  by 
the  land  office  are  open  to  review  in  the  courts.  On  the  contrary,  it 
is  fully  conceded  that  when  these  officers  decide  controverted  ques- 
tions of  fact,  in  the  absence  of  fraud,  or  impositions,  or  mistake,  their 
decision  on  those  questions  is  final,  except  as  they  may  be  reversed  on 
appeal  in  that  department.  But  we  are  not  prepared  to  concede 
that  when,  in  the  application  of  the  facts  as  found  by  them  they,  by 
misconstruction  of  the  law,  take  from  a  party  that  to  which  he  has 
acquired  a  legal  right  under  the  sanction  of  those  laws,  the  courts  are 
without  power  to  give  any  relief."  Chief  Justice  Marshall  had  held 
in  Polk's  Lessee  vs.  Wendall,  9  Cranch  87  (1815),  that  when  North 
Carolina  had  granted  certain  lands  to  the  United  States,  reserving 
the  right  to  complete  incipient  grants  to  individuals,  the  question 
whether  a  certain  grantee  of  the  State  had  an  incipient  title  at  the 
time  of  the  cession,  went  to  the  title  of  the  grantor  and  the  jurisdiction 
of  the  officers  passing  upon  the  grant,  and  remained  therefore  a  ques- 
tion of  law  for  the  court.  Likewise  in  Silver  vs.  Ladd,  7  Wall  219, 
the  court  reviewed  the  interpretation  of  law  by  a  superior  officer  in 
the  land  department,  laid  down  the  correct  doctrine  and  ordered  the 
land  conveyed  to  the  one  rightfully  entitled  to  it. 

The  court  recognizes  the  same  power  of  finality  in  special  tribunals 
to  determine  facts  arising  in  customs  matters.  In  1846,  in  a  suit 
against  a  collector  where  the  jury  appraised  the  goods  at  the  invoice 
value  and  the  collector  had  followed  the  higher  estimate  of  the  ap- 
praiser, it  was  held  that  the  finding  of  the  appraiser  governed  the  case. 
Rankin  vs.  Hoyt,  4  How  327. 


COMMISSIONS  AND   BOARDS  391 

The  case  of  Bartlett  vs.  Kane,  16  How  263  (1853),  is  stronger  still, 
for  there,  the  court  denied  any  review  of  the  appraisement,  although 
it  was  of  the  opinion  that  the  method  of  chemical  analysis  employed 
to  ascertain  the  value  was  not  to  be  relied  upon  as  a  safe  guide,  and 
was  inferior  to  the  plan  of  fixing  the  value  by  ascertaining  the  cost 
price  in  the  markets  of  its  production.  The  court  remarked  that  the 
appraisers  were  appointed  with  power  "by  all  reasonable  ways  and 
means"  to  appraise  the  value,  and  that  the  exercise  of  the  power  in- 
volved a  knowledge,  judgment  and  discretion,  and  then  invoked  the 
general  principle  "that  when  power  or  jurisdiction  is  delegated  to  any 
public  officer  or  tribunal  over  a  subject  matter,  and  its  exercise  is 
confined  to  his  or  their  discretion,  the  acts  so  done  are  binding  and 
valid  as  to  the  subject  matter."  The  necessity  for  the  decision  was 
justified  in  the  following  language:  "The  interposition  of  the  courts 
in  the  appraisement  of  importations  would  involve  the  collection  of  the 
revenue  in  inextricable  confusion  and  embarrassment." 

In  Hilton  vs.  Merritt,  no  U.S.  97  (18S4),  it  was  held  that  "in  the 
absence  of  fraud,  the  decision  of  the  customs  officers  is  final  and  con- 
clusive, and  their  appraisement,  in  contemplation  of  law,  becomes,  for 
the  purpose  of  calculating  and  assessing  the  duties  due  to  the  United 
States,  the  true  dutiable  value  of  the  importation."  The  plaintiff 
ofifered  evidence  showing  the  true  value  of  the  goods  and  the  experi- 
ence of  the  appraisers  and  the  care  exercised  by  them  in  making  the 
appraisal,  but  the  court  ruled  that  it  was  immaterial,  as  it  did  not 
tend  to  show  that  they  were  assuming  powers  not  conferred  by  the 
statute,  but  merely  carelessness  or  irregularity  in  the  discharge  of 
their  duties.  The  denial  of  the  right  to  judicial  review  was  sustained 
on  the  principle  laid  down  in  Murray's  Lessee  vs.  Hoboken,  etc.,  Co., 
and  the  court  observed  that  "if  in  every  suit  brought  to  recover  duties 
paid  under  protest,  the  jury  were  allowed  to  review  the  appraisement 
made  by  the  customs  officers,  the  result  would  be  great  uncertainty 
and  inequality  in  the  collection  of  duties  on  imports.  It  is  quite 
possible  that  no  two  juries  would  agree  upon  the  value  of  different 
invoices  of  the  same  goods." 

The  power  vested  in  the  customs  officials  was  supported  on  some- 
what different  grounds  in  Buttfield  vs.  Stranahan,  192  U.S.  470  (1904), 
where  the  court  stated  that  the  plenary  power  of  congress  over  foreign 
commerce  carried  with  it  absolute  power  to  exclude  articles  of  any 
particular  grade,  and  that,  as  no  one  had  a  vested  right  to  import,  the 
determination  of  an  administrative  board  that  any  specific  articles 
were  not  up  to  the  standard  was  in  no  sense  a  taking  of  property,  but 
simply  a  determination  of  whether  the  conditions  existed,  which  con- 
ferred the  right  to  import.  Under  the  doctrine  of  Field  vs.  Clark,  134 
U.S.  649  (1891),  it  was  held  proper  to  delegate  to  the  board  the  power 
to  fix  the  standard  and  to  apply  it,  and  further,  that  its  exercise  was 


392  COMMISSIONS  AND   BOARDS 

not  conditioned  upon  the  granting  of  a  hearing  to  the  individual  whom 
the  determination  was  to  affect.  The  administration  was  allowed  to 
enforce  its  own  determination  without  judicial  process,  as  in  the  oft- 
cited  case  of  Murray's  Lessee  vs.  Hoboken,  etc.,  Co. 

The  same  principle  underlies  the  series  of  cases  sustaining  the 
power  vested  in  the  postmaster-general  to  issue  fraud  orders  barring 
the  mail  of  concerns  whose  business  he  deems  to  be  fraudulent,  though 
they  are  by  the  statute  denied  the  right  to  a  judicial  review  of  the 
facts  on  which  his  decision  is  based.  In  Public  Clearing  House  vs. 
Coyne,  194  U.S.  497  (1904),  the  court  say  that,  as  the  postal  service 
is  no  necessary  part  of  the  civil  government,  but  a  public  function 
assumed  for  the  general  welfare,  congress  may  annex  to  its  use  such 
conditions  as  it  chooses,  classify  the  recipients  of  mail  matter,  and 
forbid  the  delivery  of  letters  to  such  as  in  its  judgment  are  making 
use  of  the  mails  for  the  purpose  of  fraud  or  deception.  As  in  the  case 
of  Buttfield  vs.  Stranahan,  the  determination  whether  a  specific 
article  or  individual  is  within  the  class  excluded  from  the  privilege  by 
congress,  is  held  properly  vested  in  the  administration,  though  the 
statute  provides  no  hearing  for  the  person  whom  the  determination  is 
to  affect.     The  case  rests  also  upon  governmental  necessity : 

If  the  ordinary  daily  transactions  of  the  departments  which  involve  an 
interference  with  private  rights,  were  required  to  be  submitted  to  the  courts 
before  action  was  finally  taken,  the  result  would  entail  practically  a  sus- 
pension of  some  of  the  most  important  functions  of  government.  ...  It 
would  practically  arrest  the  executive  arm  of  the  government  if  the  heads 
of  departments  were  required  to  obtain  the  sanction  of  the  courts  upon  the 
multifarious  questions  arising  in  their  departments,  before  action  were  taken, 
in  any  matter  which  might  involve  the  temporary  disposition  of  private 
property.  Each  executive  department  has  certain  public  functions  and 
duties,  the  performance  of  which  is  absolutely  necessary  to  the  existence 
of  the  government,  but  it  may  temporarily,  at  least,  operate  with  seeming 
harshness  upon  individuals.  But  it  is  wisely  indicated  that  the  rights  of 
the  public  must  in  those  particulars  override  the  rights  of  individuals,  pro- 
vided there  be  reserved  to  them  an  ultimate  recourse  to  the  judiciary. 

As  we  have  before  noted,  this  ultimate  recourse  is  always  available. 
The  limitations  upon  the  reviewing  power  of  the  courts  are,  and  must 
be,  in  the  last  analysis,  self-imposed  ones  —  a  restraint  which  may 
be  thrown  off  whenever  the  spirit  of  the  Constitution  demands  it. 
But  the  cases  establish  clearly  that  the  court  will  still  withhold  relief 
when  the  only  grievance  is  that  the  individual  did  not  have  a  judicial 
hearing  upon  the  facts  on  which  the  administration  based  its  action 
in  applying  the  general  law  which  is  the  source  of  its  jurisdiction  and 
authority. 

But  those  facts,  when  found,  must  be  such  as  to  justify  the  action  of 
the  administration.     Whether  upon  a  determined  state  of  facts  the  ac- 


COMMISSIONS  AND   BOARDS  393 

tion  taken  conforms  to  the  dictates  of  the  statute,  remains  a  question 
for  the  courts.  School  of  Magnetic  HeaUng  vs.  McAnnulty,  1S7  U.S. 
94  (1902).  In  that  case,  the  postmaster-general,  instead  of  investi- 
gating the  actual  conduct  of  the  complainant's  business  and  holding 
it  fraudulent,  based  his  action  in  issuing  the  fraud  order,  upon  the 
established  fact  that  they  offered  medical  advice  founded  on  the 
proposition  that  the  mind  is  largely  responsible  for  physical  ailments, 
and  the  race  possesses  the  power  through  proper  use  of  the  mind  to 
remedy  those  ills.  The  court  observed  that  the  statute  never  meant 
the  question  of  fraud  to  depend  upon  the  opinion  of  the  postmaster- 
general  as  to  the  efhcacy  of  any  particular  method  of  healing,  and  ruled 
that  since  the  facts  found  would  in  no  aspect  be  sufficient  to  justify 
his  action  under  the  statute  and  the  evidence  before  him  in  any  view 
of  the  facts  failed  to  show  a  violation  of  the  law,  his  determination 
that  such  violation  existed  was  a  pure  mistake  of  law  on  his  part, 
against  which  the  complainants  were  entitled  to  relief. 

But  the  courts  will  not  invariably  review  the  determination  of  the 
administration  simply  because  the  complainant  disputes  the  correct- 
ness of  the  application  of  admitted  principles  of  law  to  a  determined 
state  of  facts ;  or  rather,  the  courts  will  not  invariably  substitute  their 
application  of  the  law  to  the  facts  for  the  application  of  the  adminis- 
trative officer.  In  Bates  &  Guild  Co.  vs.  Payne,  194  U.S.  106  (1904), 
it  is  said : 

Where  there  is  a  mixed  question  of  law  and  fact,  and  the  court  cannot 
so  separate  it  as  to  show  clearly  where  the  mistake  of  law  is,  the  decision 
of  the  tribunal  to  which  the  law  has  confided  the  matter  is  conclusive. 

The  necessity  for  the  rule  is  again  invoked:  "The  consequence  of 
a  different  rule  would  be  that  the  court  might  be  flooded  with  appeals 
of  this  kind  to  review  the  decision  of  the  postmaster-general  in  every 
individual  instance."  But  the  court  insists  on  its  power  to  review- 
such  determinations,  and  must  in  fact  consider  the  law  and  the  facts 
if  properly  raised,  though  they  will  substitute  their  determination 
for  that  of  the  postmaster-general  only  when  clearly  of  the  opinion  he 
was  wrong. 

The  construction  of  the  statute  given  by  the  administrative  officers 
has  a  certain  presumption  in  its  favor,  but  as  the  court  says  in 
Houghton  vs.  Payne,  194  U.S.  88  (1904) : 

The  doctrine  does  not  preclude  an  inquiry  by  the  courts  as  to  the  original 
correctness  of  such  construction.  A  custom  of  the  department,  however 
long  continued  by  successive  officers,  must  yield  to  the  positive  language  of 
the  statute. 

In  that  case,  the  postmaster-general  reversed  the  ruling  of  his  prede- 
cessors as  to  the  classification  of  certain  mail  matter,  and,  though 


394  COMMISSIONS  AND   BOARDS 

it  was  strongly  urged  that  the  doctrine  of  contemporaneous  construc- 
tion should  be  applied,  the  court  ruled  that  such  doctrine  as  a  rule  of 
interpretation  was  not  an  absolute  one,  and  held  that  the  subsequent 
ruling  of  the  department  was  too  clearly  the  one  in  conformity  to  the 
statute,  to  justify  them  in  approving  of  the  former  classification,  not- 
withstanding the  length  of  time  such  classification  had  obtained. 


METHODS  OF  JUDICIAL  REVIEW  IN  RELATION  TO  THE 
EFFECTIVENESS   OF   COMMISSION   CONTROL  ^ 

By  Oscar  L.  Pond  of  the  Indianapolis  Bar 

(From  Annals  of  the  American  Academy  of  Political  and  Social  Science, 

May,  19 14) 

The  effectiveness  of  the  control  of  municipal  public  utilities  by 
state  commissions  is  determined  by  the  thoroughness  of  their  findings, 
the  justice  of  their  rulings  and  the  extent  to  which  the  proceedings 
and  orders  of  the  commissions  are  sustained  by  the  courts  or  made 
final  and  conclusive  by  statutory  enactments.  While  the  strength 
of  commission  findings  and  the  validity  of  the  orders  issued  thereon 
depend  upon  the  scope  and  accuracy  of  their  investigations  and  the 
integrity  of  their  rulings,  the  force  and  effect  of  commission  control 
depend  ultimately  upon  the  authority  conferred  on  the  commissions 
by  the  legislatures  in  the  first  instance  and  the  extent  to  which  action 
by  commissions  is  made  conclusive  of  the  contro^'ersy.  The  right  of 
review  or  appeal  to  the  courts  from  the  proceedings  of  commissions 
limits  and  defines  the  sphere  of  their  efficiency  and  determines  the 
extent  to  which  the  courts  may  supplant,  modify  or  set  aside  the 
action  of  commissions ;  thereby  making  their  findings  and  orders  con- 
ditional and  qualified,  and  not  absolute  and  final. 

After  an  investigation  of  the  facts  on  due  notice,  usually  of  not  less 
than  ten  days,  and  a  public  hearing,  the  proceedings  of  the  commis- 
sion have  been  concluded  and  disposed  of  with  an  order  or  regulation, 
an  interested  party  may  generally  apply  to  the  commission  for  a 
rehearing  because  of  additional  evidence,  changed  conditions  or  errors 
and  omissions  in  its  original  proceedings.  The  time  within  which  a 
petition  for  rehearing  may  be  filed  is  limited  by  statute  in  Ohio  to 
thirty  days,^  and  in  Pennsylvania  to  fifteen  days ;  ^  while  in  Illinois 
only  one  rehearing  may  be  granted,  which,  however,  does  not  prevent 
any  party  after  two  years  from  again  applying  to  the  commission 

1  Copyrighted.  ^  Laws  1911,  p.  549,  Sect.  45. 

^  Laws  191 3,  no.  854,  Art.  VI,  Sect.  14. 


COMMISSIONS  AND   BOARDS  395 

upon  a  new  and  different  sta^te  of  facts/  and  in  Washington  any  public 
service  corporation,  being  affected  and  aggrieved  by  any  order  of  the 
commission,  may  after  two  years  file  a  petition  for  rehearing,  and  in 
cases  where  the  order  has  not  been  reviewed  by  the  court  but  complied 
with  by  the  company,  the  petition  may  be  filed  within  six  months.^ 
An  application  for  rehearing,  which  must  specifically  set  forth  the 
reasons  therefor  and  be  filed  within  a-  month,  if  not  before  the  order 
takes  effect,  is  frequently  made  a  condition  precedent  to  judicial 
review  as  in  New  Hampshire,^  Missouri,*  Ohio  ^  and  California.^ 

The  commission  may  exercise  its  own  discretion  in  granting  a  re- 
hearing or  dismissing  the  petition,  and  on  a  rehearing  may  in  its  dis- 
cretion sustain,  modify,  or  revoke  its  original  action.  The  time  within 
which  a  petition  for  rehearing  shall  be  determined  by  the  commission 
is  fixed  by  statute  in  some  states,  being  limited  to  thirty  days  after 
the  same  is  finally  submitted  in  Idaho,^  Missouri,^  and  New  York.^ 
And  it  is  sometimes  expressly  provided  that  no  legal  proceeding  to 
contest  any  order  or  regulation  of  the  commission  can  be  taken  until 
it  acts  upon  an  appHcation  for  a  hearing  as  in  Illinois  ^'^  and  Nebraska, ^^ 

While  the  commission  has  authority  to  make  summary  investiga- 
tions they  are  generally  supplemented  later  by  formal  hearings  on  due 
notice,  if  in  the  opinion  of  the  commission  sufficient  ground  exists  to 
justify  a  further  hearing,  in  which  case  it  may  be  granted  on  motion 
of  the  commission  itself  or  upon  application  by  an  interested  party, 
as  provided  by  statute  in  Indiana, ^^  Oregon,^^  Maine,^"*  Wisconsin  ^^ 
and  in  the  District  of  Columbia. ^^ 

Ample  provision  is  made  for  a  full  and  thorough  investigation  of  all 
material  facts  after  notice  to  interested  parties  and  a  complete  public 
hearing  in  connection  with  practically  all  proceedings  of  any  com- 
mission, which  serves  as  the  basis  of  the  findings  and  orders  or  regu- 
lations in  the  forty  or  more  jurisdictions  which  now  have  commissions. 
The  commissions  are  created  for  the  sole  and  express  purpose  of  mak- 
ing such  investigations  and  issuing  the  proper  orders  thereon.  The 
members  of  the  commissions  are  selected  and  trained  especially  for 
this  service  to  which  they  devote  their  exclusive  time  and  attention. 
They  are  peculiarly  fitted  for  such  work  and  their  findings  and  orders 

'  Ibid.  p.  450,  Sect.  67. 

2  Laws  iQii,  chapter  117,  Sect.  8q,  as  amended  1913,  c.  145. 

^  Laii's  1913,  chapter  145,  Sect.  18. 

^  Ibid.  p.  556,  Sect.  no.  ^  Laws  igii,  p.  549,  Sect.  32. 

^ Slats.  IQII,  ist  ex.  sess.,  chapter  14,  Sect.  66. 

'  Laws  IQ13,  chapter  61,  Sect.  62.  *  Ibid.  p.  556,  Sect.  no. 

'  Laws  igio,  chapter  480,  pub.  ser.  com.  law  Sect.  22. 

'<•  Laws  iQiJ,  p-  459,  Sect.  68.  "  Slats.  iQii,  Sect.  10655. 

^^  Acts  IQ13,  chanter  76,  Sect.  62. 

^^  Laws  iQii,  chapter  279,  Sect.  10. 

^*  Laws  IQ13,  chapter  129,  Sect.  46,  pending  on  referendum. 

^^  Slats.  IQII,  Sect.  1797  M-7. 

"Appropriation  act,  March  4,  1913,  Sect.  9,  par.  45. 


396  COMMISSIONS  AND   BOARDS 

are  very  properly  and  necessarily  presumed  to  be  reasonable,  lawful 
and  correct.  The  burden  of  proof  is  placed  on  the  party  attacking 
their  action  and  unless  the  weight  of  evidence  is  clearly  against  the 
findings  of  the  commission  they  will  be  sustained  and  their  orders 
enforced  on  appeal  to  the  courts,  unless  they  are  clearly  illegal. 

By  statute  in  California  the  findings  and  conclusions  of  the  com- 
mission on. question  of  fact  are  properly  made  final  and  not  subject 
to  judicial  review ;  and  it  is  provided  that  questions  of  fact  shall 
include  ultimate  facts  and  the  findings  and  conclusions  of  the  commis- 
sion on  reasonableness  and  discrimination.^  In  Colorado  it  is  pro- 
vided that  the  findings  and  conclusions  of  the  commission  on  dis- 
puted questions  of  fact  shall  be  final  and  shall  not  be  subject  to  review 
by  the  courts."  The  statutory  provisions  of  Idaho  make  the  findings 
and  conclusions  of  the  commission  on  questions  of  fact  prima  facie 
just,  reasonable  and  correct ;  such  questions  of  fact  to  include  ulti- 
mate facts  and  the  findings  and  conclusions  of  the  commission  on 
reasonableness  and  discrimination.^  In  Illinois  the  statute  provides 
that  the  findings  and  conclusions  of  the  commission  on  questions  of 
fact  shall  be  prima  Jade  true,  and  their  rules,  regulations,  orders  or 
decisions  prima  facie  reasonable ;  thereby  shifting  the  burden  of  proof 
on  all  issues,  as  is  done  in  practically  all  other  states,  upon  the  party 
appealing  therefrom.'*  The  New  Hampshire  statute  provides  that  all 
findings  of  the  commission  upon  all  questions  of  fact  properly  brought 
before  it  shall  be  prima  facie  lawful  and  reasonable.^  And  in  Penn- 
sylvania the  orders  of  the  commission  are  made  prima  facie  evidence 
of  their  reasonableness.^ 

Within  a  limited  time,  usually  thirty  days,  after  the  final  action  of 
the  commission,  appeal  therefrom  lies  to  the  county  or  district  court 
where  the  matter  in  question  arose,  to  such  courts  having  jurisdiction 
where  the  commission  sits  or  to  the  supreme  or  the  court  of  last  resort 
in  the  state.  Appeals  may  be  taken  only  within  thirty  days  and 
directly  to  the  supreme  court  in  the  state  of  California,  where  on 
review  the  court  may  only  determine  whether  the  commission  has 
regularly  pursued  its  authority  and  whether  the  order  or  decision 
being  reviewed  violates  any  constitutional  right  of  the  petitioner; 
and  the  judgment  of  the  supreme  court  must  either  affirm  or  set  aside 
the  order  or  decision  of  the  commission.'  In  Colorado  the  right  of 
appeal  is  likewise  limited  to  the  supreme  court  which  has  authority  in 
addition  to  that  granted  the  California  court  to  determine  whether 

^  Stats.  iQii,  1st  ex.  sess.,  chapter  14,  Sect.  67. 

^  Laws  IQ13,  chapter  127,  Sect.  52. 

'  Ibid,  chapter  61,  Sect.  63. 

<  Ibid.  p.  459,  Sect.  68. 

'Ibid,  chapter  145,  .Sect.  18. 

6  Ibid.  no.  854,  Art.  VI,  Sect.  23. 

'  Stats.  191  J,  ist  ex.  sess.,  chapter  14,  Sect.  67. 


COMMISSIONS  AND   BOARDS  397 

the  order  of  the  commission  is  just  and  reasonable  and  whether  its 
conclusions  are  in  accordance  with  the  evidence,  and  the  court  may 
affirm,  set  aside  or  modify  the  order  or  decision  of  the  commission.^ 
Similar  provisions  for  review  on  certiorari  by  the  supreme  court  are 
made  by  the  statutes  of  Idaho  where,  however,  the  judgment  of  the 
court  must  either  affirm  or  set  aside  the  action  of  the  commissions.^ 
In  Maine  the  right  of  appeal  is  expressly  limited  to  a  decision  by  the 
supreme  court  on  questions  of  law,  submitted  on  an  agreed  statement 
of  facts  or  on  facts  found  by  the  commission  which  together  with  copies 
of  the  arguments  of  counsel  must  be  filed  with  the  court. ^  The  su- 
preme judicial  court  of  Massachusetts  is  given  jurisdiction  in  equity 
to  review,  annul,  modify  or  amend  rulings  and  orders  of  the  commis- 
sion in  so  far  as  they  are  unlawful.'* 

Any  party  affected  and  dissatisfied  with  the  action  of  the  commis- 
sion in  Nebraska  may  resort  to  the  supreme  court  which  may  reverse, 
vacate,  or  modify  such  action.^  In  New  Hampshire  provision  is 
made  for  appeal  direct  to  the  supreme  court  which  shall  not  set  aside 
the  order  or  decision  of  the  commission  except  for  errors  of  law  unless 
the  court  is  clearly  satisfied  under  the  evidence  that  the  order  is  un- 
just and  unreasonable,  when  in  its  judgment  the  court  must  dismiss 
the  appeal  or  vacate  the  order  in  whole  or  in  part,  in  which  case  the 
matter  may  be  remanded  to  the  commission  for  such  further  proceed- 
ings not  inconsistent  with  the  judgment,  as  in  the  opinion  of  the 
commission  justice  may  require.^  Review  of  the  proceedings  of  the  com- 
mission by  the  supreme  court  alone  is  also  provided  for  in  New  Jersey/ 
New  Mexico,^  Ohio,^  Oklahoma,!^  Rhode Island,^Wermont, 12  Virginia/^ 
and  in  West  Virginia. ^^ 

Within  fifteen  days  after  final  action  by  the  Connecticut  commis- 
sion, which  it  may  extend  to  thirty  days,  an  appeal  lies  to  the  superior 
court  of  the  county  in  which  the  matter  arose,  or  if  the  question  is  not 
local,  to  the  court  of  Hartford  County,  the  seat  of  the  commission. 
The  decision  of  this  local  court  is  made  conclusive,  subject  to  review 
by  the  supreme  court  of  errors  on  questions  of  law.^^  In  Georgia  the 
court  of  Fulton  County,  the  domicile  of  the  commission,  is  given 

^  Laws  IQ13,  chapter  127,  Sect.  52. 

2  Ibid,  chapter  61,  Sect.  63. 

'Ibid,  chapter  i2g,  Sect.  53,  pending  on  referendum. 

^  Acts  IQ13,  chapter  784,  Sect.  27. 

^  Stats.  IQII,  Sect.  10655. 

^  La-ws  IQ13,  chapter  145,  Sect.  18,  adding  Sect.  22  to  191 1,  c.  164. 

'  Laws  1911,  chapter  195,  Sect.  38. 

*  Const.,  .Article  XI,  Section  7. 

'  Laws  IQII,  p.  549,  Sect.  33. 

1"  Const.,  Article  g,  Section  20. 

1'  Laws  1 91 2,  chapter  795,  Sect.  34. 

^^  Laws  190S,  chapter  116,  Sect.  12. 

1' Const.,  Section  156.  • 

^*  Acts  IQ13,  chapter  9,  Sect.  16. 

^^  Pub.  acts  igii,  chapter  128,  as  amended  1913,  c.  225. 


398  COMMISSIONS  AND   BOARDS 

exclusive  jurisdiction  of  appeals,  except  that  the  supreme  court  may 
be  resorted  to  in  enforcing  penalties^  as  also  in  Alabama-  and  Arizona 
where  the  judgment  of  the  local  court  is  final  unless  notice  of  appeal 
therefrom  is  given  at  the  time  judgment  is  entered.^  Within  thirty 
days  after  action  by  the  commission  and  a  hearing  or  petition  therefor 
under  the  statutes  of  Illinois  appeal  lies  to  the  circuit  court  of  Sanga- 
mon County,  the  seat  of  the  commission,  and  from  its  decision  to  the 
supreme  court  within  sixty  days.^  Similar  provisions  for  appeal  to 
the  court  of  the  county  in  which  the  commission  sits  and  thence  to 
the  supreme  court  of  the  state  are  made  in  Louisiana,^  Pennsylvania,^ 
Tennessee  ^  and  Wisconsin.^ 

In  Indiana  the  appeal  lies  within  sixty  days  to  the  court  of  any 
county  in  which  the  order  is  operative  and  thence  within  sLxty  days  to 
the  supreme  court.  A  transcript  of  the  evidence  and  of  all  the  pro- 
ceedings of  the  commission,  as  in  most  states,  constitutes  the  record 
on  appeal  and  the  commission  is  required  to  file  a  certified  copy  of 
such  transcript  with  the  clerk  of  the  court  before  the  trial.  The 
answer  of  the  commission  to  the  complaint  or  petition  on  appeal  must 
be  filed  ten  days  after  it  is  served  with  notice  of  the  appeal,  and  all 
such  actions  are  given  precedence  over  other  civil  cases.  If  evidence 
is  introduced  in  the  trial  on  appeal  which  the  court  finds  to  be  differ- 
ent from  that  considered  by  the  commission  or  additional  thereto, 
unless  by  agreement  the  parties  stipulate  to  the  contrary,  the  court 
must  transmit  a  copy  of  such  evidence  to  the  commission  and  stay 
court  proceedings  for  fifteen  days.  After  considering  such  evidence 
the  commission  may  sustain,  modify  or  revoke  its  order  and  must 
report  its  action  thereon  to  the  court  in  ten  days.  The  judgment  of 
the  court  is  then  rendered  on  the  case  as  modified,  if  any,  by  the  com- 
mission.^ Similar  provisions  as  to  additional  or  different  evidence 
being  transmitted  to  the  commission,  pending  the  consideration  of 
which  the  court  stays  its  proceedings,  is  made  by  statute  in  the  Dis- 
trict of  Columbia,^*'  Maryland, ^^  Michigan, '^  Montana, ^^ Nevada, ^^  New 
Hampshire, ^^  Oregon, ^^  and  Wisconsin. ^^ 

Where  new  or  different  evidence  is  discovered  in  Pennsylvania  the 
case  may  be  remanded  to  the  commission. ^^  In  this  state,  also,  it  is 
interesting  to  note,  the  party  taking  the  appeal  must  make  affidavit 

^  Code  iQio,  Sects.  2625,  2668.  ^  Slats,  igii,  Sect.  1797  M-64. 

'^  Acts  1007,  sp.  sess.  no.  17,  Sect.  15.  ^  Acts  IQ13,  chapter  76,  Sects.  69-83. 

*  Laws  IQ12,  chapter  90,  Sect.  67.  '"  Appropriation  act,  March  4,  1913,  Sect.  8. 

*  Laws  IQ13,  p.  459,  Sects.  68,  69.  "  Ann.  code  iQii,  art.  23,  Sect.  458. 
5  Const.,  Article  285.  ^^  Pub.  acts  igij,  no.  206,  Sect.  16. 

^  Laws  1913,  no.  854,  Art.  VI,  Sect.  17.        ^^  Laws  IQ13,  chapter  52,  Sect.  26. 

''Acts  191 3,  chapter  32,  Sect.  13.  "  Rev.  laws  IQ12,  Sect.  4564. 

''^  Laws  191 3,  chapter  145,  Sect.  18,  adding  section  22  to  1911,  chapter  164. 
'^^  Laws  1911,  chapter  279,  Sect.  56. 
"Stats.  IQII,  chapter  9,  Sect.  1797  M-67. 
"  Laws  IQ13,  no.  854,  art.  VI,  Sect.  25. 


COMMISSIONS   AND   BOARDS  399 

that  it  is  not  taken  for  the  purpose  of  delay  but  in  the  belief  that  in- 
justice has  been  done.  In  Illinois,  if  the  commission  refuses  to  receive 
proper  evidence,  the  court  must  remand  the  case  to  the  commission 
with  instructions  to  receive  the  same  and  enter  a  new  order  based  upon 
all  the  evidence  ^  In  Massachusetts  a  petition  for  appeal  must  be 
accompanied  by  a  certificate  of  opinion  that  the  case  is  a  proper  one 
for  judicial  inquiry  and  that  the  appeal  is  not  intended  for  delay,  and 
in  the  event  the  court  finds  to  the  contrary  it  shall  assess  double 
costs  upon  such  appellant.^ 

The  effectiveness  of  the  orders  of  the  commission  and  the  extent 
of  its  control  are  largely  determined  by  the  conclusiveness  of  its  find- 
ings and  the  validity  of  its  orders  pending  appeals  taken  therefrom. 
For  the  same  reasons  and  practically  to  the  same  extent  that  as  a 
matter  of  evidence  on  appeal  presumptions  are  indulged  in  favor  of 
the  action  of  the  commission,  their  orders  are  generally  not  suspended 
while  an  appeal  for  judicial  review  is  pending  except  on  motion  of 
the  commission  or  by  the  court  after  notice  and  the  giving  of  suffi- 
cient bond.  For  the  commission  to  be  most  efficient  and  of  the 
greatest  practical  value  many  of  its  orders  and  regulations  issued 
after  due  investigation  must  become  and  remain  effective  with  the 
final  disposition  of  the  commission.  The  necessary  delay  attending 
reviews  by  the  courts  and  their  lack  of  time  and  opportunity  for  in- 
vestigating situations  at  first  hand  and  as  a  current  operating  concern 
constitute  at  once  the  occasion  and  the  chief  reason  for  commission 
control.  Suspending  their  orders  pending  appeals  and  while  the  same 
are  being  reviewed  by  the  different  courts  interferes  materially  with 
the  effectiveness  of  the  commission,  detracts  from  the  validity  of  its 
action  and  often  postpones  indefinitely  the  enjoyment  of  the  results 
of  its  investigations  and  findings. 

By  constitutional  provision  as  well  as  statutory  enactment  in 
Arizona  the  rules,  regulations,  orders  and  decrees  of  the  commission 
remain  in  force  pending  the  decision  of  the  courts.^  In  Florida  it  is 
expressly  provided  by  statute  that  all  orders,  judgments  or  decrees 
of  inferior  courts  in  favor  of  the  commission  shall  remain  effective 
until  finally  disposed  of  by  the  appellate  court.**  The  constitution 
of  Louisiana  provides  also  that  orders  of  the  commission  shall  remain 
in  force  until  set  aside  by  the  final  judgment  of  a  court  of  competent 
jurisdiction.^  In  Montana  all  rates  fixed  by  the  commission  remain 
in  full  force  and  effect  until  final  determination  by  the  courts  having 
jurisdiction,^  and  similar  provision  is  made  by  statute  in  Nevada  ^  and 
North  Dakota.^     When  a  rate  which  has  been  effective  for  a  year  or 

>  Laws  IQ13,  p.  450,  Sect.  68.  2  yj^^^  iqij,  chapter  784,  Sect.  27. 

'  Const.,  Article  XV,  Section  17;  Laws  igi2,  chapter  go.  Sects.  66-68. 

*Gen.  stats.  IQ06,  Section  2923.  'Const.,  Article  286,  as  amended  1908. 

^  Laws  191 3,  chapter  52,  Sect.  26.  ''Rev.  laws  IQ12,  Sect.  4546. 

*  Rev.  codes  IQ05,  Sect.  4351. 


400  COMMISSIONS  AND   BOARDS 

more  is  advanced,  the  order  of  the  commission,  reinstating  the  former 
rate  in  whole  or  in  part,  may  not  be  suspended  pending  the  final  de- 
termination of  the  matter  by  the  courts  according  to  the  provisions 
of  the  statutes  in  Illinois  ^  and  in  Washington.- 

In  Connecticut,  however,  appeals  supersede  the  order  or  decision 
appealed  from  as  a  rule,  although  the  court  may  order  to  the  con- 
trary if  the  appeal  is  for  purposes  of  delay,  or  if  justice,  public  safety 
or  expediency  may  require ;  ^  and  this  same  provision  is  made  by 
statute  in  Rhode  Island ;  ^  while  in  Tennessee  the  rate,  rule,  order  or 
regulation  is  suspended  only  in  case  legal  proceedings  are  instituted 
within  ten  days,  and  then  only  upon  injunction  issued  after  notice 
and  subject  to  large  penalties  if  procured  in  bad  faith.^ 

As  a  general  rule,  in  most  jurisdictions  having  commissions,  their 
orders  and  regulations  may  be  enjoined  by  the  courts,  after  a  hearing 
and  notice,  upon  good  cause  shown  and  the  giving  of  sufhcient  bond 
to  cover  costs  and  damages  resulting  in  case  the  action  for  injunction 
was  not  well  founded  and  the  order  is  finally  sustained ;  but  the  fact 
that  a  writ  of  appeal  or  review  is  pending  does  not  suspend  the  order 
or  regulation.  In  addition  to  the  ordinary  cost  bond  which  is  generally 
required  as  a  condition  of  granting  an  injunction  and  suspending  the 
order  of  the  commission,  the  statutes  in  a  number  of  jurisdictions 
having  commissions,  provide  for  the  giving  of  a  supersedeas  or  suspend- 
ing bond  conditioned  and  sufficient  in  amount  to  insure  the  prompt 
and  complete  refunding  to  all  parties  entitled  thereto  of  all  charges 
or  rates  for  service  paid  in  excess  of  the  rate  fixed  by  the  commission 
and  sustained  by  the  courts  on  review.  Verified  accounts  showing 
the  amount  of  such  excess  rates  and  from  whom  received  and  to  whom 
payable  are  often  required  of  all  parties  as  a  condition  for  the  sus- 
pension of  any  order  or  rate  regulation  of  the  commission,  as  is  ex- 
pressly provided  in  Cahfornia,^  Colorado,^  Idaho,^  Illinois,^  Missouri,^" 
Nebraska,"  Ohio,^^  Oklahoma, ^^  Oregon,"  Pennsylvania,^^  South  Da- 
kota,^^  and  Washington. ^^     In  North  Carolina  the  additional  amount 

1  Laws  IQ13,  p.  459,  Sect.  71. 

^  Laws  iQii,  chapter  117,  Sect.  82. 

^  Pub.  acts  IQII,  chapter  128,  Sect.  33. 

^  Laws  1912,  chapter  795,  Sect.  35. 

^  Acts  igi3,  chapter  32,  Sect.  13. 

^  Stats.  IQII,  ist  ex.  sess.,  chapter  14,  Sect.  68. 

''Laws  IQ13.  chapter  127,  Sect.  51. 

*  Ibid,  chapter  61,  Sects.  63-64. 

'  Ibid.  p.  459,  Sect.  71. 
1°  Ibid.  p.  556,  Sect.  112. 
"  Stats.  IQII,  Sect.  10655. 
^^  Laws  IQ13,  p.  804,  Sects.  37-41. 

"  Const.,  Article  9,  Section  21  ;  Laws  IQ13,  chapter  10,  Sect.  3. 
'■*  Laws  IQII,  chapter  279,  Sect.  55. 
'5  Laws  IQ13,  no.  854,  Art.  VI,  Sect.  19. 
i^Ibid.  chapter  312,  Sect.  5. 
^''  Laws  IQII,  chapter  117,  Sect.  87. 


COMMISSIONS  AND   BOARDS  401 

collected  because  of  the  excess  rate  being  in  effect  must  be  paid  to  the 
state  every  three  months.^  In  New  Hampshire  the  conditions  for 
securing  the  repayment  of  the  amounts  received  under  the  excessive 
rates  to  the  parties  originally  paying  the  same  are  fixed  by  the  court, 
and  a  failure  to  make  such  repayments  promptly  as  provided  by  the 
court  is  punishable  as  a  contempt  of  court. ^ 

The  effectiveness  of  the  control  of  municipal  public  utilities  by 
state  commissions  is  largely  determined  by  the  attitude  of  the  courts 
in  their  construction  of  the  public  utility  acts  and  in  their  review  of 
commission  findings  and  orders  on  appeal.  That  public  utility  com- 
missions are  practical  business  necessities  and  entirely  consistent  with 
constitutional  rights  has  been  fully  recognized  by  all  the  courts  which 
have  been  called  upon  to  construe  these  statutory  enactments,  and 
their  decisions  freely  admit  that  such  state  commissions  are  necessary 
administrative  agencies  and  furnish  the  most  satisfactory  solution  of 
the  many  intricate  and  comprehensive  business  questions  that  are 
constantly  arising  in  increasing  numbers  in  connection  with  the  regu- 
lation and  control  of  public  utilities  which  every  one  now  regards  as 
natural  monopolies  and  every-day  business  necessities. 

The  federal  court  in  the  case  of  Des  Moines  Gas  Company  vs.  Des 
Moines  ^  frankly  recognized  the  necessity  and  practical  advantage  of 
this  method  of  regulation  and  control  by  conceding  that : 

Much  of  this  kind  of  litigation,  and  practically  all  of  the  expense,  would 
be  avoided  if  Iowa,  like  so  many  of  the  other,  including  some  neighboring, 
states,  had  an  impartial  and  city  non-resident  commission  or  tribunal,  with 
power  to  fix  these  rates  at  a  public  hearing,  all  interested  parties  present, 
with  the  tribunal  selecting  its  own  engineers,  auditors  and  accountants. 

The  court  of  New  York  concurring  with  those  of  many  other  juris- 
dictions expressed  unqualified  approval  of  the  plan  of  commission 
control  in  the  case  of  Saratoga  Springs  vs.  Saratoga  Gas,  etc..  Com- 
pany *  in  saying : 

That  the  most  appropriate  method  (speaking  from  a  practical,  not  neces- 
sarily constitutional,  point  of  view)  is  the  creation  of  a  commission  or  body 
of  experts  to  determine  the  particular  rates,  has  been  said  several  times  in 
the  opinions  rendered  by  the  supreme  court  of  the  United  States  in  the 
various  railroad  commission  cases  and  in  those  of  state  courts. 

And  in  the  recent  case  of  People  ex  rel.  New  York  Edison  Com- 
pany vs.  Willcox  *  this  same  court  said  : 

'  Rev.  1905,  Sect.  1082. 

2  Laws  1Q13  chapter  145,  Sect.  18;  adding  Sect.  22  to  igii,  chapter  164. 

3  19Q  Fed,  204. 

"  iQo  N.Y.  562  ;  83  N.E.  693  ;  18  L.  R.  A.  (N.S.)  713- 
^  207  N.Y.  86;  100  N.E.  705. 


402  COMMISSIONS  AND   BOARDS 

That  law  {i.e.  public  service  commissions  law)  was  enacted  in  response 
to  a  pronounced  and  insistent  public  opinion,  and  was  a  radical  and  im- 
portant modification  of  the  relations  and  policy  of  the  people  toward  the 
corporations,  which  are  its  subjects.  Its  paramount  purpose  was  to  pro- 
tect and  enforce  the  rights  of  the  public.  It  made  the  commission  the 
guardians  of  the  public  by  enabling  them  to  prevent  the  issue  of  stock  and 
bonds  for  other  than  statutory  purposes,  or  in  appreciable  and  unfair  excess 
of  the  value  of  the  assets  securing  them,  and  to  prevent  also  unneeded  or 
extortionate  competition,  or  indifferent  and  unaccommodating  methods  of 
operation,  or  oppressive  or  discriminating  charges  or  rates.  It  provides  for 
a  regulation  and  control  which  were  intended  to  prevent,  on  the  one  hand, 
the  evils  of  an  unrestricted  right  of  competition,  and,  on  the  other  hand, 
the  abuses  of  monopoly. 

The  supreme  court  of  Wisconsin  has  also  fully  sustained  and  very 
frankly  approved  the  plan  of  commission  control  in  the  case  of  Calu- 
met Service  Company  vs.  Chilton/  where  the  court  says : 

Control  by  the  trained  impartial  state  commission,  so  as  to  effect  the  one 
supreme  purpose,  i.e.,  the  best  service  practicable  at  reasonable  cost  to  con- 
sumers in  all  cases  and  as  near  a  uniform  rate  for  service  as  varying  cir- 
cumstances and  conditions  would  permit  [is]  a  condition  as  near  the  ideal 
probably  as  could  be  attained. 

This  uniformly  favorable  attitude  of  our  courts  towards  the  prin- 
ciple of  commission  control  is  pertinent  and  deserves  consideration  in 
connection  with  their  holding  that  the  right  of  appeal  and  judicial 
review  is  statutory  and  therefore  subject  to  the  will  of  the  legislature 
within  the  constitutional  limitations  of  due  process  and  equal  pro- 
tection of  the  law  with  respect  to  the  preservation  of  property  and 
contract  rights.  The  nature  and  extent  of  the  right  to  appeal  from 
the  commission's  action,  together  with  the  reason  for  the  rule,  are  well 
expressed  in  the  case  of  Minneapolis,  etc.,  Company  vs.  Railroad  Com- 
missioners ^  where  the  court  said : 

Being  purely  the  creature  of  statute,  the  right  of  appeal  from  the  deci- 
sion of  the  commission  to  the  district  court,  if  it  exists,  must  be  found  in 
express  provisions  of  the  act.  .  .  .  But  it  is  not  to  be  presumed  that  the 
legislature  intended  to  turn  the  courts  into  appellate  railroad  commissions, 
which  should  retry  the  facts,  and  pass  upon  matters  of  a  purely  adminis- 
trative nature,  relating  to  the  maintenance  and  operation  of  railways,  and 
involving  merely  questions  of  policy  affecting  the  security  or  convenience 
of  the  public.  Indeed,  if  the  act  assumed  to  confer  upon  the  courts  juris- 
diction over  matters  so  entirely  foreign  to  the  judicial  function,  it  would 
be  of  doubtful  vahdity  to  say  the  least  of  it. 

There  being  no  inherent  right  of  appeal,  the  nature  and  extent  of 
the  power  and  authority  of  such  commissions  to  issue  orders,  from 

1  148  Wis.  334;  135  N.W.  131.  2  4^  Minn.  336;  46  N.W.  559- 


COMMISSIONS  AND   BOARDS  403 

which  there  is  actually  no  such  right,  are  concisely  stated  in  the  case 
of  Interstate  Commerce  Commission  vs.  Union  Pacific  Railway  Com- 
pany ^  as  follows : 

The  orders  of  the  commission  are  final  unless  (i)  beyond  the  power  which 
it  could  constitutionally  exercise,  or  (2)  beyond  its  statutory  power,  or  (3) 
based  upon  a  mistake  of  law.  But  questions  of  fact  may  be  involved  in  the 
determination  of  questions  of  law,  so  that  an  order,  regular  on  its  face,  may 
be  set  aside  if  it  appears  that  (4)  the  rate  is  so  low  as  to  be  confiscatory  and 
in  violation  of  the  constitutional  prohibition  against  taking  property  with- 
out due  process  of  law,  or  (5)  if  the  commission  acted  so  arbitrarily  and  un- 
justly as  to  fix  rates  contrary  to  evidence,  or  without  evidence  to  support 
it,  or  (6)  if  the  authority  therein  involved  has  been  exercised  in  such  an  un- 
reasonable manner  as  to  cause  it  to  be  within  the  elementary  rule  that  the 
substance,  and  not  the  shadow,  determines  the  validity  of  the  exercise  of 
the  power.  .  .  .  "The  findings  of  the  commission  are  made  by  law  prima 
facie  true  and  this  court  has  ascribed  to  them  the  strength  due  to  the  judg- 
ments of  a  tribunal  appointed  by  law  and  informed  by  experience.  Its 
conclusion  of  course  is  subject  to  review,  but,  when  supported  by  evidence, 
is  accepted  as  final." 


JUDICIAL  REVIEW  OF  PUBLIC   REGULATION  2 

By  Milo  R.  Maltbie,  Public  Service  Commissioner,  First 
District,  New  York 

(From  the  Journal  of  Political  Economy,  May,  191 2) 

In  the  discussion  of  government  regulation  of  public  service  cor- 
porations, attention  has  been  centered  upon  the  organization,  powers, 
and  duties  of  administrative  commissions.  Many  have  forgotten 
that  the  success  of  government  regulation  depends  in  large  measure 
upon  the  attitude  of  the  courts  and  the  scope  of  judicial  review.  No 
matter  how  perfect  the  plan  enacted  by  the  legislature,  it  may  soon 
resemble  a  toothless  invertebrate  if  judicial  review  is  unlimited ;  and 
excellent  results  may  be  obtained  under  an  inferior  plan,  if  the  courts 
support  and  strengthen  it. 

It  is  generally  admitted  that  there  should  be  some  method  whereby 
the  acts  of  a  commission  may  be  reviewed  by  the  courts.  The  theories 
upon  which  our  political  system  is  based  require  that  it  shall  be  pos- 
sible for  a  person  injuriously  affected  by  a  decision  of  an  administra- 
tive body  to  appeal  to  the  courts  at  some  stage  of  the  proceeding. 
The  question  is  not,  therefore,  whether  there  should  be  any  judicial 

'  222  U.S.  541. 

*  This  article  embodies  the  substance  of  an  address  before  the  Western  Economic  Society, 
at  Chicago,  March  i,  1Q12. 


404  COMMISSIONS  AND   BOARDS 

control,  but  rather  how  far  that  control  should  extend,  and  upon  what 
grounds  the  courts  may  set  aside  the  decisions  of  coordinate  branches 
of  the  government. 

Judicial  Questions 

Probably  all  will  agree  that  the  courts  should  decide  whether  an 
act  of  an  administrative  body  violates  a  constitutional  provision  of 
the  state  or  of  the  United  States.  The  right  to  a  decision  upon  this 
point  is  unquestioned.  The  finding  of  the  court  may  be  wrong,  but 
it  is  the  law  until  the  constitution  is  changed  or  the  court  reverses  its 
opinion.  This  principle  is  of  general  application,  for  an  act  of  the 
legislature  may  be  declared  unconstitutional  just  as  effectually  as  an 
administrative  order. 

It  is  likewise  clear  that  the  courts  should  determine  whether  the 
regulative  body  is  acting  within  the  authority  delegated  to  it  by  the 
legislature  or  by  the  constitution.  Any  order  that  is  issued  without 
such  authority  is  illegal,  and  the  determination  of  the  question  of 
authority  is  a  judicial  function.  If  authority  may  be  exercised  under 
certain  conditions,  the  courts  will  determine  whether  those  conditions 
have  been  met.^ 

In  the  third  place,  it  is  proper  that  the  courts  should  have  the 
right  to  review  the  procedure  leading  up  to  the  issuance  of  an  order 
or  the  performance  of  an  act  by  a  regulative  authority,  so  that  they 
may  determine  whether  the  course  followed  was  regular  in  every  way. 

In  every  one  of  these  cases,  the  courts  are  called  upon  to  apply 
a  law  already  existing  to  a  specific  instance.  But  in  no  case  are  the 
courts  supposed  to  enact  a  new  law,  or  substitute  a  perfect  order  for 
an  imperfect  one,  or  declare  a  statute  or  order  illegal  merely  because 
in  their  opinion  it  is  unwise  or  inexpedient.-  They  may  not  add  one 
jot  or  one  tittle  on  their  own  initiative.  As  the  United  States  Supreme 
Court  has  said  (Prentiss  et  al.  vs.  Atlantic  Coast  Line  Co.,  211  U.S. 
210,  226) : 

A  judicial  inquiry  investigates,  declares  and  enforces  liabilities  as  they 
stand  on  present  or  past  facts  and  under  laws  supposed  already  to  exist. 
That  is  its  purpose  and  end.  Legislation  on  the  other  hand  looks  to  the 
future  and  changes  existing  conditions  by  making  a  new  rule  to  be  applied 
thereafter  to  all  or  some  part  of  those  subject  to  its  power.  .  .  .  Litigation 
cannot  arise  until  the  moment  of  legislation  is  past. 

Scope  of  Court  Review 

We  have  now  reached  the  point  of  divergence.  There  are  those 
who  claim  that  the  courts  are  fully  competent  to  regulate  public 

1  Interstate  Commerce  Commission  vs.  N.  Pacific  Ry.  Co.,  216  U.S.  538. 

2  Interstate  Commerce  Commission  vs.  111.  Central  R.R.  Co.,  215  U.S.  452. 


COMMISSIONS  AND   BOARDS  405 

ser^'ice  corporations,  even  to  the  extent  of  fixing  rates.  In  a  recent 
decision  by  the  New  York  Court  of  Appeals,  it  was  said  (People  ex 
rcl.  Joline  et  al.  vs.  Willcox  et  al.,  194  N.  Y.  383,  387) : 

If  a  judicial  tribunal  is  competent  to  decide  that  the  exaction  of  five  cents 
is  extortionate,  and  that  a  tender  of  three  cents  is  inadequate,  it  is  difficult 
to  see  why  it  may  not  be  empowered  to  also  decide  that  four  cents  is  a 
reasonable  and  proper  rate,  and  that  such  rate  shall  continue  until  circum- 
stances so  change  that  the  judgment  of  the  tribunal  may  again  be  invoked. 
The  obligation  of  a  carrier  to  carry  at  a  reasonable  rate,  in  the  absence  of 
any  statutory  rate,  rests  on  statute  or  on  the  common  law ;  the  decree  of  a 
court  does  not  create  an  obligation,  but  measures  an  existing  one. 

It  is  true  that  the  obligation  to  supply  service  at  reasonable  rates 
is  not  new  and  that  it  has  existed  for  generations ;  but  it  is  equally 
true  that  appeal  to  the  courts,  as  a  method  of  securing  reasonable 
rates  and  adequate  control,  has  been  seldom  used  and  has  proven 
ineffectual,  for  reasons  which  will  be  discussed  later. 

Others,  who  recognize  the  impossibility  of  securing  effective  con- 
trol through  ordinary  judicial  procedure,  favor  the  creation  of  com- 
missions, but  insist  that  the  courts  should  be  empowered  to  determine 
whether  in  their  opinion  an  order  of  a  regulative  authority  is  wise, 
expedient,  and  reasonable,  and  whether  the  evidence  justifies  the 
order.  Those  who  favor  limited  judicial  review  assert  that  such  a 
policy  would  be  destructive  of  efficient  regulation,  and  that  it  is  not 
proper  for  a  court  to  nullify  an  order  of  a  commission  simply  because 
its  judgment  of  what  is  wise  and  reasonable  differs  from  that  of  the 
commission.  Between  these  two  ideas  there  is  a  third,  which  requires 
that  orders  be  upheld  by  the  courts  unless  they  are  unsupported  by 
any  evidence  of  record  in  the  case.  It  is  evident  that  there  is  room 
here  for  great  difference  of  opinion  as  to  the  amount  of  discretion 
which  should  be  allowed  to  the  regulating  body.  Even  in  those 
states  that  have  expressly  provided  for  an  appeal  to  the  courts,  there 
is  considerable  difference  between  the  decisions. 

Varying  State  Practice 

In  Oklahoma,  where  the  constitution  provides  that  the  Supreme 
Court  shall  determine  the  "reasonableness  and  justness  of  the  action 
of  the  commission"  and  that  it  "shall  be  regarded  as  prima  facie 
just,  reasonable,  and  correct,"  in  practice  the  court  considers  the 
matter  de  novo,  acts  as  if  it  were  a  commission  or  the  legislature  and 
issues  an  order  such  as  the  commission  ought  to  have  made.  Ap- 
parently, consideration  is  given  to  the  special  knowledge  and  skill  of 
the  commissioners,^  but  any  presumption  in  their  favor  may  be  easily 

'  A.  T.  &  S.  F.  Ry.  Co.  vs.  State,  23  Oklahoma  510;  Ft.  Smith  &  W.  Ry.  Co.  vs.  State, 
loS  Pac.  Rep.  407. 


4o6  COMMISSIONS   AND   BOARDS 

rebutted.^  Their  orders  have  not  the  same  standing  as  decisions  of 
lower  courts  considered  upon  appeal. 

The  courts  in  other  states  refuse  to  go  so  far.  For  example,  the 
Supreme  Court  of  Maine  recently  said  in  relation  to  a  decision  of  the 
Railroad  Commissioners,  apportioning  the  expense  of  repairing  a 
bridge  between  a  railroad  company  and  the  town  :  "Their  apportion- 
ment must  stand  unless  manifestly  illegal  or  unjust."  ^  Similarly,  the 
Kansas  Supreme  Court  said,  relative  to  an  elimination  of  a  grade 
crossing:  "Its  [Board  of  Railroad  Commissioners]  decision,  in  the 
absence  of  exceptional  circumstances,  must  be  final.  Of  course,  if  its 
action  had  been  arbitrary  or  capricious,  the  courts  could  afford  relief. 
.  .  .  The  court  cannot  presume  to  pass  upon  the  fitness  of  the  plans 
adopted."  ^ 

Numerous  other  decisions  could  be  cited  which  show  a  strong 
tendency  in  many  states  away  from  the  theory  of  broad  court  review. 
In  Minnesota,  the  Supreme  Court  said  that  if  the  statute  intended 
that  the  state  district  court  should  try  a  matter  decided  by  the  com- 
mission, without  regard  to  the  findings  of  the  state  commission,  the 
act  would  be  unconstitutional.  The  judge  writing  the  opinion  went 
on  to  say  that  the  court  may  review  such  findings  only  so  far  as  to 
determine  whether  the  rates  fixed  "are  so  unreasonable  as  to  be  con- 
fiscatory, just  as  an  appellate  court  reviews  the  verdict  of  a  jury  for 
the  purpose  of  determining  whether  it  is  so  excessive  that  it  cannot 
stand,"  and  that  every  reasonable  doubt  should  be  resolved  in  favor 
of  the  findings;  all  this  notwithstanding  the  fact  that  the  statute 
provided  the  district  court  should  determine  questions  of  fact  as  well 
as  of  law.* 

In  a  Louisiana  case,  the  following  doctrine  was  laid  down : 

The  mere  reference  of  disputed  issues  between  the  parties  to  this  court  for 
adjudication  was  not  intended  to  constitute  it  an  "administrative"  board, 
revisory  in  character  over  the  orders  and  conclusions  of  the  Commission. 
Our  action  is  judicial,  not  administrative.  It  was  not  intended  that  we 
should  substitute  our  judgment  for  that  of  the  Commission  every  time 
there  is  a  dispute  touching  the  particular  place  on  a  line  of  railroad  where 
it  would  be  best  for  the  public  interest  that  a  station  or  a  depot  should  be 
placed.^ 

The  Wisconsin  Supreme  Court,  in  a  case  involving  the  construction 
of  a  new  railway  station  and  the  stoppage  of  trains  thereat,  ruled 

'  Twin  Valley  Tel.  Co.  vs.  Mitchell,  27  Oklahoma  388;  113  Pac.  Rep.  914;  St.  Louis 
&  S.  F.  R.R.  Co.  vs.  Reynolds,  26  Oklahoma  804  ;  no  Pac.  Rep.  668 ;  St.  Louis,  I.  M.  &  S. 
Ry.  Co.  vs.  State,  in  Pac.  Rep.  396. 

2  Inhabitants  of  Orono  vs.  Bangor  Ry.  and  Electric  Co.,  105  Me.  428. 

'  State  vs.  Railway  Co.,  81  Kansas,  430.  Cf.  Matter  of  Amsterdam,  Johnstown  and 
Gloversville  R.R.  Co.,  86  Hun  578. 

■*  Steenerson  vs.  Great  Northern  Ry.  Co.,  69  Minn.  353. 

'  Railroad  and  Steamship  Co.  vs.  Railroad  Com.,  109  La.  247,  263. 


COMMISSIONS  AND   BOARDS  407 

that  the  degree  of  proof  necessary  to  warrant  the  reversal  of  a  decision 
of  the  Railroad  Commission  was  that  required  to  prove  fraud  or  a 
mistake  in  a  written  document.  The  court  says  that  if  it  were  sitting 
as  a  railroad  commission,  it  would  not  issue  the  order  in  question ; 
but  as  it  found  that  competent  and  reasonable  men  might  differ  upon 
this  point,  the  decision  of  the  lower  court  upholding  the  commission 
would  not  be  overturned.^ 

The  United  States  courts,  particularly  the  Supreme  Court,  have 
gone  very  much  farther  than  any  state  court  in  their  refusal  to  inter- 
fere with  the  orders  or  decisions  of  administrative  bodies.  A  suit 
was  brought  before  a  circuit  court  in  Pennsylvania  to  prevent  the 
enforcement  of  a  rate  order  of  the  Interstate  Commerce  Commission. 
At  that  time  the  law  provided  that  the  orders  of  the  commission  could 
be  suspended  or  set  aside  by  the  courts.     The  court  said :  ^ 

The  fixing  of  rates  as  an  incident  to  the  regulation  of  commerce,  being  a 
non-judicial  function,  it  follows  that  when  the  legislative  branch  has  itself 
acted  therein,  or  by  proper  delegation  of  its  powers  has  acted  through  the 
executive  branch,  such  action,  provided  no  legal,  constitutional,  or  natural 
right  has  been  violated,  is  not  to  be  suspended  or  vacated  by  a  court.  .  .  . 

It  is  therefore  apparent  that,  when  the  question  of  suspending  or  setting 
aside  an  executive  act  comes  before  a  court  under  such  statute,  the  ques- 
tion is  one  of  law,  namely,  whether  the  executive  transcended  its  power  or 
exercised  such  power  without  due  regard  to  law.  If,  for  example,  there  was 
a  failure  to  comply  with  statutory  requisites  of  notice,  or  to  afford  a  statu- 
tory hearing,  or  the  action  taken  was  confiscatory  —  these  are  all  elements 
a  court  might  consider  and  in  exercising  such  jurisdiction  inquire  into  the 
facts  to  ascertain  the  real  subject  involved  as  throwing  light  upon  the  law- 
ful or  unlawful  character  of  the  order  under  review. 

The  learned  judge  then  declares  that  the  court's  jurisdiction  in 
the  case  at  bar  is  the  same  as  that  in  cases  relating  to  fraud  orders. 
This  comparison  is  interesting  in  view  of  the  great  difficulty  in  getting 
the  courts  to  review  postal  fraud  orders  issued  by  the  Post-office 
Department.  Indeed,  it  is  practically  impossible  to  get  the  United 
States  Supreme  Court  to  review  the  acts  of  any  executive  depart- 
ment to  determine  questions  of  fact.  In  a  well-known  case,  the  court 
would  not  allow  a  finding  of  a  master  in  chancery  of  a  circuit  court  to 
upset  the  ruling  of  the  Secretary  of  Commerce  and  Labor  as  to  the 
place  of  birth  of  a  Chinaman.^ 

The  Supreme  Court  will  not  set  aside  an  order  merely  because  it 
is  unreasonable.  It  must  be  so  unreasonable  that  it  violates  a 
constitutional    provision ;     it   must   be   so    unreasonable    that    it  is 

»Minn.,  St.  Paul  &  Sault  Ste.  Marie  R.R.  Co.  App.  vs.  Railroad  Com.,  136  Wis.  146; 
also  116  Northwestern  Rep.  905. 

2  Phila.  &  Reading  Ry.  Co.  el  al.  vs.  Interstate  Commerce  Com.,  174  Fed.  Rep.  687, 
688-689. 

'  United  States  vs.  Ju  Toy,  198  U.S.  253. 


4o8  COMMISSIONS   AND   BOARDS 

confiscatory,  and  confiscatory  "beyond  any  just  or  fair  doubt."  The 
burden  of  proof  is  upon  the  corporation  afTected ;  and  in  case  of 
doubt  as  to  the  illegality  of  the  act,  a  fair  trial  under  the  new  rate 
should  be  given.  Between  an  extortionate  rate  and  a  confiscatory 
rate,  there  is  usually  wide  range.  It  is  not  a  judicial  function  to  deter- 
mine what  the  reasonable  rate  should  be,  or  to  substitute  the  opinion 
of  the  court  for  that  of  an  administrative  body.^ 

The  newly  created  Commerce  Court  has  indicated  its  intention  to 
go  farther,  to  consider  the  weight  of  evidence,  and  to  overturn  the 
decisions  of  the  Interstate  Commerce  Commission,  unless  the  evidence 
in  the  case  before  them  justifies  the  finding.  If  this  position  is  sus- 
tained by  the  Supreme  Court,  it  will  have  a  serious  effect  upon  the 
work  of  tlie  commission.  The  expert  knowledge  and  wide  familiarity 
with  public  utilities,  which  are  the  result  of  years  of  experience,  will 
count  for  little,  for  the  commissioners  may  not  use  their  own  knowl- 
edge unless  it  agrees  with  evidence  in  the  record.  Facts  garnered 
from  other  cases  are  not  pertinent  unless  put  in  evidence  in  the  case 
at  bar.  The  testimony  of  witnesses  may  not  be  disregarded  unless 
other  witnesses  are  called  who  testify  differently,  although  the  com- 
missioners may  be  certain  from  their  experience  that  the  evidence  is 
not  worthy  of  much  consideration.  Yet,  everyone  knows  how  easy  it 
is  to  get  "expert"  evidence  to  support  almost  any  proposition,  and 
how  important  it  is  in  order  to  judge  of  the  weight  of  e\ddence  to  hear 
the  testimony. 

Wisdom  of  Legislative  Acts  not  Reviewable 

Regarding  court  review  of  administrative  acts,  it  should  be  pointed 
out  in  the  first  place  that  acts  of  the  legislature  may  not  be  overturned 
by  the  courts  upon  the  ground  that,  in  their  opinion,  such  acts  are 
unwise,  inexpedient,  or  unwarranted.  This  principle  is  too  well 
known  to  need  discussion.  If,  therefore,  the  legislature  delegates  its 
power  to  regulate  corporations  to  an  administrative  body,  and  if  the 
courts  are  to  have  the  right  to  consider  the  reasonableness,  propriety, 
etc.,  of  its  acts,  the  corporations  thus  obtain  an  additional  method  of 
review  which  they  did  not  heretofore  possess.  It  is  generally  sup- 
posed that  their  rights  were  already  amply  protected,  and  that 
existing  constitutional  guaranties  were  sufficient.  The  purpose  of 
regulation  is  to  curb  the  power  of  corporations,  not  to  provide 
additional  means  to  delay  and  prevent  action. 

Further,  legislatures  are  not  bound  by  rules  of  evidence.  They 
are  not  required  to  have  evidence  or  to  follow  it.  They  need  not 
give  hearings ;   they  may  act  on  their  own  initiative.     If  commissions 

1  Cf .  City  of  Knoxville  vs.  Knoxville  Water  Co.,  212  U.S.  i ;  Willcox  vs.  Consolidated 
Gas  Co.,  212  U.S.  19. 


COMMISSIONS  AND   BOARDS  409 

are  required  to  hold  hearings  so  that  any  company  likely  to  be  affected 
may  have  an  opportunity  to  be  heard,  it  has  greater  protection  than 
is  guaranteed  it  under  legislative  control. 

But  someone  may  say :  What  if  these  commissions  are  unfair,  are 
not  guided  by  the  evidence,  and  do  not  exercise  good  judgment ; 
should  it  not  be  possible  to  appeal  to  a  higher  authority  ?  The  same 
question  might  be  asked  in  relation  to  the  legislative,  but  there  is  no 
appeal  to  the  courts  upon  such  grounds.  Further,  is  it  likely  that 
administrative  bodies  will  be  less  fair  than  legislatures?  Is  it  not 
likely  that  a  body  created  and  selected  for  one  specific  purpose  will 
perform  this  one  function  with  as  great  efficiency,  fairness,  and  wis- 
dom as  another  which  has  a  multitude  of  other  duties  to  perform  and 
is  not  in  continuous  session  ? 

Control  of  Commissions 

However,  administrative  bodies  are  not  irresponsible  autocrats, 
subject  to  no  restraint  and  accountable  to  no  one.  In  the  first  place, 
they  are  responsible  to  the  person  who  appoints  them,  or  to  the  elec- 
torate if  they  are  elected.  Their  terms  are  comparatively  short  in 
most  cases  —  much  shorter  than  the  terms  of  many  judges.  If  their 
decisions  are  manifestly  unfair  and  improper,  they  may  not  be  re- 
elected or  reappointed.  There  is  usually  a  method  of  removing  them 
from  office  in  case  of  gross  incompetence. 

Commissions  are  also  responsible  to  the  legislature  in  three  ways. 
The  very  offices  which  they  hold  may  be  abolished ;  the  authority 
under  which  they  act  may  be  curtailed ;  their  decisions  in  any  specific 
case  or  class  of  cases  may  be  set  aside,  for  an  act  of  the  legislature  will 
supersede  a  decision  of  a  commission.  In  these  ways,  commissions 
are  subject  to  greater  and  more  direct  control  than  the  legislature 
itself,  and  certainly  to  more  control  than  the  courts.  A  decision  of 
the  courts  upon  constitutional  grounds  cannot  be  set  aside  except  in 
a  laborious  way  and  only  after  considerable  time  has  elapsed.  In 
many  cases,  indeed,  this  process  is  so  difficult  that  a  decision  of  the 
courts  is  final  and  practically  beyond  review. 

Argument  against  Broad  Review 

Is  it  necessary,  in  addition  to  the  above  methods  of  control  and 
the  constitutional  jurisdiction  which  courts  have  over  administrative 
acts,  to  provide  that  the  courts  may  also  determine  whether  an  order 
is  wise,  warranted  by  the  evidence,  and  a  reasonable  exercise  of  the 
discretionary  power  conferred  ? 

One  reason  why  the  courts  should  not  be  given  unlimited  authority 
to  review  orders  of  commissions  is  that  judges  are  not  selected  pri- 
marily for  this  function.     They  are  chosen  presumably  because  of 


4IO  COMMISSIONS   AND   BOARDS 

their  legal  knowledge,  and  not  because  of  any  familiarity  with  public 
utilities  or  methods  of  regulation,  or  of  knowledge  of  the  needs  of  the 
public.  To  impose  a  duty  upon  them  which  they  are  not  fitted  to 
perform,  for  which  they  were  not  chosen  primarily,  and  which  has  no 
relation  whatever  to  their  legal  duties,  would  be  unwise.  The  uni- 
versal experience  in  governmental  administration  is  that  the  union 
of  widely  different  functions  in  one  person  or  body  ordinarily  results 
in  inefficiency  in  some  one  direction  or  in  every  direction.  In  this 
case,  either  legal  questions  would  be  less  wisely  decided  or  public 
regulation  would  be  inefficient. 

In  Steenerson  vs.  Great  Northern  Railway  Co.,  69  Minn.,  353,  377, 
Mr.  Justice  Canty  said,  after  referring  to  the  peculiar  qualities  which 
members  of  commissions  should  have : 

How  is  a  judge,  who  is  not  supposed  to  have  any  of  this  special  learning 
or  experience,  and  could  not  take  judicial  notice  of  it  if  he  had  it,  to  review 
the  decision  of  commissioners,  who  should  have  it  and  should  act  upon  it  ? 
It  seems  to  us  that  such  a  judge  is  not  lit  to  act  in  such  a  matter.  It  is  not 
a  case  of  the  blind  leading  the  blind,  but  of  one  who  has  always  been  deaf 
and  blind  insisting  that  he  can  see  and  hear  better  than  one  who  has  always 
had  his  eyesight  and  hearing,  and  has  always  used  them  to  the  utmost 
advantage  in  ascertaining  the  truth  in  regard  to  the  matter  in  question. 

In  this  connection  it  is  to  be  noted  that  one  of  the  principal  reasons 
for  the  creation  of  special  administrative  bodies  to  supervise  corpora- 
tions, is  that  judicial  methods  and  remedies  have  been  neither  effective 
nor  satisfactory  to  the  public.  The  long  delays,  the  great  expense, 
and  the  heavy  burden  upon  the  private  citizen  or  organization,  attend- 
ing any  attempt  to  force  a  corporation  to  do  what  is  required  by  law, 
only  in  general  terms,  have  made  recourse  to  the  courts  quite  im- 
practicable. The  private  citizen  is  at  a  big  disadvantage,  and  there 
have  been  few  cases  w^here  he  has  tried  his  theoretical  remedy.  To 
give  the  courts  the  right  to  review  the  acts  of  administrative  bodies 
exercising  legislative  functions  would  be  a  backward  step  and  would 
increase  the  difficulties  of  securing  proper  relief.  Corporations  can- 
not be  regulated  by  private  lawsuits. 

Judicial  bodies  are  not  well  organized  to  regulate  public  service 
corporations.  They  are  governed  by  strict  rules  of  evidence.  Their 
procedure  usually  spells  delay.  They  pass  only  upon  evidence  pre- 
sented to  them.  They  have  no  permanent  technical  staff  to  make 
investigations  and  to  assist  them  to  analyze  and  digest  the  voluminous 
testimony  often  presented.  The  questions  that  arise  are  often  so 
technical  that  expert  assistance  is  necessary  to  a  wise  decision.  Even 
if  the  investigation  were  made  in  first  instance  by  an  administrative 
body,  and  an  appeal  were  provided  to  a  court  upon  the  question  of 
reasonableness,  whether  the  evidence   justified  the  order,  etc.,  the 


COMMISSIONS  AND   BOARDS  411 

special  knowledge  of  the  administrative  body  would,  in  large  meas- 
ure, become  of  little  value.  The  establishment  of  such  an  appeal 
would  probably  change  the  administrative  body  into  a  judicial  body. 
But  what  is  the  use  of  a  commission  with  a  competent  staff  of  experts, 
if  a  court  with  no  such  staff  is  to  make  the  final  decision,  not  only  as 
to  the  law,  but  as  to  the  facts  and  their  application  to  the  conditions 
which  surround  an  intricate  case  ?  The  fundamental  theory  of  public 
regulation  by  an  administrative  body  is  that  it  is  a  special  function 
requiring  special  qualifications  and  knowledge  upon  the  part  of  those 
who  exercise  it,  a  staff  of  technical  experts,  who  are  as  familiar  with 
the  industries  to  be  regulated  as  the  corporations  themselves,  ample 
time  and  opportunity  to  investigate  every  subject,  and  sufficient 
authority  to  carry  out  the  conclusions  reached. 

A  few  illustrations  will  suffice  to  show  the  burden  which  a  careful 
review  of  the  evidence  will  place  upon  the  courts.  A  case  relating  to 
transfers  between  the  various  street-car  companies  in  the  Borough 
of  Manhattan  was  recently  closed  before  the  Public  Service  Commis- 
sion for  the  First  District,  N.Y.  The  record  covers  nearly  4000 
typewritten  pages,  including  nearly  200  exhibits,  many  of  which  are 
elaborate  statistical  comparisons.  In  another  case,  relating  to  the 
reorganization  of  a  company,  about  2400  typewritten  pages  of  testi- 
mony were  taken,  including  about  130  exhibits.  It  is  evident  that  if 
a  court  is  to  analyze  such  a  voluminous  record  and  decide  whether 
the  commission  wisely  reached  the  conclusion  appealed  from,  either 
other  cases  must  wait,  clerical  and  expert  assistance  must  be  had,  or  a 
decision  must  be  reached  without  the  careful  examination  necessary. 

Broad  court  review  will  almost  inevitably  decrease  efficiency.  If 
a  corporation  may  appeal  to  the  courts  because  it  believes  an  order  is 
not  justified  by  the  record,  and  if  it  may  secure  a  review  of  such  evi- 
dence by  a  lower  court  and  then  by  a  higher  court,  a  final  decision  may 
be  put  off  and  off,  until  the  public  is  worn  out  and  effective  regulation 
greatly  hampered.  It  is  said  that  even  under  a  system  of  judicial 
control  limited  to  purely  legal  and  constitutional  questions,  such  a 
result  may  follow.  True,  but  that  is  no  reason  for  increasing  the  ex- 
cuses for  delay;  and  every  time  a  new  subject  is  added  to  the  list 
upon  which  appeal  may  be  taken,  delay  is  facilitated. 

The  advantages  accruing  to  a  corporation  from  litigation  are  often 
so  considerable  that  suits  may  be  started  even  where  the  prospect 
of  success  is  small.  In  the  first  place,  it  may  pay  to  htigate ;  and  it  is 
not  always  feasible  to  require  a  company  to  reimburse  its  patrons  or 
consumers  if  it  loses.  In  the  case  of  service  orders,  if  the  court  issues 
a  stay  but  later  sustains  the  order,  the  public  has  irretrievably  lost 
the  benefits  from  the  better  service  it  should  have  had  while  the  liti- 
gation was  proceeding.  Information  may  be  needed  to  decide  a  rate 
case ;  but  if  the  company  may  contest  the  order  for  such  data  through 


412  COMMISSIONS   AND   BOARDS 

the  courts,  and  prevent  a  decision  while  that  is  being  done,  it  is  evi- 
dent the  receipts  from  the  contested  rates  may  more  than  offset  the 
cost  of  litigation. 

Secondly,  the  threat  of  a  long  contest  in  the  courts  may  be  used  to 
secure  a  compromise.  Complainants  and  commissions  are  apt  to 
reason  that  it  is  better  to  accept  a  result  which  is  less  than  the  facts 
warrant,  if  by  so  doing  an  immediate  settlement  is  obtained.  This 
virtually  places  a  reward  upon  belligerency  and  often  prevents  the 
public  from  securing  that  to  which  it  is  fairly  entitled.  Every  means 
that  contributes  to  that  end  is  certainly  undesirable. 

Again,  the  complainant  is  at  a  decided  disadvantage  usually  when 
the  case  goes  into  the  courts.  It  is  difficult  and  expensive  for  him  to 
litigate.  The  interest  of  any  one  person  is  ordinarily  small  as  com- 
pared with  that  of  the  corporation.  But  if  there  is  to  be  an  appeal  to 
the  courts,  the  complainants  or  the  public  ought  to  have  an  equal  right 
to  appeal  from  a  decision  that  does  not  please  them. 

Another  objection  to  the  theory  of  broad  judicial  control  is  that  it 
will  tend  to  lessen  responsibility.  When  administrators  know  that  their 
decisions  are  final,  so  far  as  "reasonableness"  is  concerned,  they  will 
naturally  exercise  care  and  diligence.  The  centralization  of  responsi- 
bility increases  the  realization  of  this  responsibihty.  But  if  they  know 
that  even  in  any  unimportant  matter  an  appeal  may  be  taken,  the 
tendency  will  be  to  transfer  the  responsibility  to  the  courts  and  to 
reach  conclusions  hastily  in  order  that  the  appeal  may  be  taken  im- 
mediately. It  will  also  enable  inefficient  bodies  to  shift  the  responsi- 
bility for  inefficiency  upon  the  courts. 

The  role  of  the  prophet  is  always  hazardous  and  thankless,  but 
one  may  safely  predict  that  if  a  system  of  court  review  is  generally 
adopted,  whereby  a  corporation  that  is  dissatisfied  with  any  act  or 
order  may  appeal  to  the  courts  and  thereby  delay  for  a  long  period  a 
final  decision,  and  perhaps  upset  the  conclusion  reached  by  the  ad- 
ministrative body  because  the  court  has  a  different  opinion  of  what  is 
wise,  expedient,  or  warranted  by  the  facts,  a  return  may  be  made  to 
legislative  regulation  which  is  subject  to  no  such  review,  whenever  it 
seems  likely  that  advantage  is  to  be  taken  of  litigation  to  secure  delay. 
The  corporations  have  ample  protection  without  unlimited  review, 
and  their  real  interests,  as  well  as  those  of  the  public,  do  not  lie  in 
this  direction.  Further,  if  public  regulation  does  not  prove  to  be 
satisfactory,  another  and  more  radical  remedy  will  certainly  be  tried. 


VI 

LABOR   LAWS   AND    THE   LABOR   CONTRACT 

PROGRESSIVE  TENDENCIES   IN  LABOR  LAW 
ADMINISTRATION  IN  AMERICA 

By  John  B.  Andrews,  Secretary  American  Association  for 
Labor  Legislation 

(From  American  Labor  Legislation  Review,  December,  1913) 

One  of  the  most  important  phases  of  the  newer  relations  the  govern- 
ment is  assuming  toward  industry  is  discovered  in  the  rapidly  multiplying 
laws  affecting  labor :  they  embrace  not  only  factory  regulations,  but  laws 
pertaining  to  the  labor  contract,  hours,  wages,  employers'  liability.  The 
attitude  of  the  courts  towards  labor  laws  and  labor  disputes,  especially 
towards  boycotts,  is  of  growing  importance.  —  Editor's  Note. 

Numerous  as  the  obstacles  usually  are  to  securing  the  enactment 
of  wise  labor  laws,  to  secure  their  efficient  enforcement  is  even  more 
difficult.  Much  of  our  labor  law  in  the  past  has  failed  of  its  purpose 
on  account  of  defective  administration. 

During  the  first  fifty  years  of  labor  legislation  in  America  little 
attention  wa"s  given  to  the  problems  of  enforcement.  No  special 
machinery  was  created  to  inquire  into  the  operation  of  these  laws. 
No  new  authorities  were  given  the  responsibility  of  enforcing  them. 

But  beginning  in  Massachusetts  in  the  year  1869,  wdth  the  formation 
of  the  first  state  Labor  Bureau  in  the  world,  a  new  chapter  opened  in 
which  is  recorded  a  long  succession  of  attempts  to  organize  state 
machinery  for  the  systematic  investigation  of  labor  conditions  and 
the  publication  of  labor  statistics.  It  w^as  not  until  several  years  later, 
however,  that  state  bureaus  were  created  for  the  definite  purpose  of 
inspecting  work  places  to  discover  and  prosecute  violations  of  the  law. 
State  after  state  has  established  bureaus  of  factory  inspection  and  labor 
statistics  until  such  bureaus  exist  to-day  in  forty-two  states.  Indeed, 
in  several  instances,  within  a  single  commonwealth  the  various  recog- 
nized functions  of  a  labor  bureau  are  scattered  through  more  than  half- 
a-dozen  different  bureaus,  boards  or  departments.  This  lack  of  unity 
of  authority  and  responsibility  has  been  one  of  the   causes  of  lax 

413 

{ 


414   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

administration.  And  in  spite  of  much  good  work  accomplished  in 
certain  limited  portions  of  the  field  or  in  a  few  states,  the  results  as 
a  whole  may  not  unfairly  be  described  as  thirty  years  of  ineffective 
organization. 

The  principal  functions  of  these  state  bureaus  have  been  (i)  the 
investigation  of  labor  conditions,  (2)  the  pubUcation  of  statistical 
reports,  and  (3)  the  enforcement  of  labor  laws.  An  influential  labor 
editor  as  early  as  18S7  criticized  these  bureaus  in  scathing  terms.  He 
characterized  their  reports  as  of  little  practical  value,  and,  after  de- 
ploring the  inconvenient  and  unattractive  arrangement  of  material, 
he  declared  in  disgust  that  "  the  index  should  be  written  by  the  author 
even  if  the  book  is  not ! " 

The  greatest  cause  for  dissatisfaction,  however,  has  been  the  failure 
of  these  bureaus  to  enforce  the  law.  And  the  reasons  for  such  failure 
are  not  hard  to  understand.  The  inherent  technical  difficulties  are 
great ;  appropriations  have  been  insufficient ;  the  form  of  organization 
has  been  faulty ;  the  work  to  be  accomplished,  concerning  as  it  fre- 
quently does  the  most  vital  relations  between  employers  and  employees, 
is  of  a  very  delicate  nature.  The  successful  mediator  in  time  of  strikes, 
for  example,  should  command  the  confidence  of  both  parties  to  the 
dispute.  He  should  be  possessed  of  unusual  tact.  He  should  be  im- 
partial. Again,  the  intelligent  collection  and  tabulation  of  statistics 
requires  a  certain  amount  of  scientific  training.  The  preparation  and 
publication  of  a  report  presupposes  the  ability  to  put  facts  in  a  form 
that  will  instruct.  Finally,  any  administrative  authority  that,  on 
account  of  the  nature  and  extent  of  the  problem,  must  depend  for  its 
success  upon  the  cooperation  of  the  principal  groups  in  the  community, 
must  itself  inspire  a  spirit  of  cooperation. 

The  old  idea  of  labor  law  enforcement,  of  policing  a  state,  no  longer 
commands  respect.  The  "detective  method,"  valuable  and  necessary 
as  it  is  at  times  in  covering  hidden  violations  of  the  law,  is  neverthe- 
less to  be  condemned  when  it  becomes  the  habitual  form  of  inspection. 
An  army  of  the  most  skilled  factory  inspectors  would  be  totally  unable 
to  enforce  every  provision  of  the  factory  laws.  In  a  state  like  Pennsyl- 
vania, for  example,  there  are  more  than  28,000  manufacturing 
establishments  alone,  scattered  over  an  area  of  45,000  square  miles. 
Moreover,  few  inspectors,  even  with  previous  technical  training,  would 
be  able  intelligently  to  pass  upon  proper  provisions  for  safety,  comfort, 
and  health  in  a  succession  of  establishments  including  processes  and 
danger  points  so  varied  as  those  to  be  found  in  the  manufacture  of 
steel  and  silk,  carpets  and  chemicals,  shirt  waists  and  shovels,  or  in 
the  construction  of  sky-scrapers  and  subways. 

Unfortunately,  the  successful  candidates  for  factory  inspection 
positions  have  not  in  the  majority  of  instances  been  selected  on  account 
of  peculiar  fitness  for  the  work.     Frequently  they  have  been  appointed 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   415 

from  lists  of  political  henchmen,  as  a  cheap  way  of  paying  off  political 
debts.  In  only  nine  states  at  the  present  time  —  as  graphically 
indicated  by  the  colored  map  printed  elsewhere  in  this  volume  —  is 
there  a  merit  or  ci\al  service  system  for  the  selection  of  factory  in- 
spectors, and  even  there  frequent  exemptions  for  tri\ial  causes  have 
brought  that  system  almost  into  disrepute.  In  the  work  of  safeguard- 
ing dangerous  machinery ;  in  the  highly  technical  task  of  removing 
from  the  workrooms  poisonous  dusts  and  fumes;  in  short,  in  the 
scientific  work  of  conserving  the  comfort,  health  and  safety  of  the 
millions  of  men,  women  and  children  who  labor  in  factory,  workshop 
and  mine,  even  the  workers  themselves  have  too  often  thought  first, 
not  of  the  protection  of  human  life,  but  of  the  paltry,  political  job. 

It  should  be  definitely  understood  that  control  of  this  highly  im- 
portant function  of  the  government  by  any  single  interested  group 
would  be  undesirable.  The  practical  experience  of  the  worker,  the 
resourcefulness  of  the  employer,  the  critical,  constructive  ability  of 
the  expert  —  all  are  needed  in  the  framing  of  reasonable  standards  of 
protection.  It  is  the  lack  of  cooperation  of  these  three  groups  in  the 
past  that  has  left  unnumbered  thousands  yearly  to  suffer  for  the  want 
of  protection  ;  it  is  the  new  spirit  of  cooperation  in  the  administration 
of  labor  laws  that  is  the  promise  of  the  future. 

Within  the  last  three  years  we  have  entered  upon  a  new  era  in 
factory  inspection.  The  recognition  that  administration  is  the 
most  important  problem  in  labor  legislation  is  working  a  revolu- 
tion in  this  field.  There  is  a  new  spirit  in  the  work  —  the  spirit  of 
cooperation. 

Beginning  with  the  organization  of  the  Wisconsin  Industrial  Com- 
mission in  191 1,  and  followed  in  1913  by  somewhat  similar  organiza- 
tions in  the  states  of  California,  Massachusetts,  New  York,  Ohio 
and  Pennsylvania,  almost  one-half  of  the  industrial  working  popula- 
tion of  this  country  is  offered  a  new  form  of  protection.  Formerly 
in  these  states,  and  elsewhere  in  America,  labor  legislation  was  fre- 
quently a  result  of  strategy,  of  fevered  lobbjdng,  of  iDuttonhoIing  per- 
plexed or  harassed  politicians,  of  publicity  campaigns  and  much 
letter  writing  —  often  resulting  either  in  the  death  or  the  passage  of 
some  sort  of  an  emasculated  bill.  When  the  bill  passed  —  if  it  did 
pass  —  its  advocates  were  only  too  apt  to  sit  back  complacently  with 
the  feeling  that  they  had  accomplished  a  great  and  lasting  good,  and 
quickly  to  forget  all  about  the  law.  If  it  happened  to  be  in  one  of 
those  states  where  factory  inspectors  are  sent  into  the  field  looking  for 
violations  of  the  law,  employers  were  sometimes  haled  into  court. 
Here  it  frequently  happened  that  the  word  of  the  inspector  was  offset 
by  the  word  of  the  employer,  and  the  magistrate,  bewildered  by  his 
own  ignorance  of  industrial  conditions,  either  dismissed  the  case  or,  as 
the  records  too  often  show,  upon  finding  the  employer  guilty  soothed 


41 6   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

his  uncertain  soul  with  the  remark  that  the  court  knew  the  employer 
to  be  "a  humane  man"  and  consequently  would  " suspend  sentence." 
Result :  the  inspector  was  disgusted,  the  employer  was  angry,  and  most 
lamentable  of  all,  the  worker  was  left  unprotected. 

Wisconsin,  like  other  states,  went  through  years  of  this  attempted 
regulation,  but  finally  decided  to  reorganize  on  a  new  principle.  An 
industrial  commission  of  three  members  with  salaries  of  S5000  a  year 
was  created  to  unify  the  work  of  factory  inspection,  labor  law  enforce- 
ment, and  the  publication  of  reports.  The  form  and  scope  of  organiza- 
tion was  similar  to  the  suggestive  outline  which  forms  the  frontispiece 
to  this  volume.  The  legislature  handed  over  to  this  commission  a 
great  public  trust  and  said,  "  Make  the  work  places  safe."  Safety  was 
defined  in  the  law  as  such  freedom  from  danger  to  life,  health  or  safety  as 
the  nature  of  the  employment  will  reasonably  permit. 

With  this  authority  from  the  legislature,  and  with  an  instructive 
background  of  experience  and  judicial  sanction  from  the  public  utility 
field,  the  industrial  commissioners  turned  to  their  task.  They  called 
to  the  service  of  their  state  one  of  the  most  capable  safety  experts  in 
America.  He  served  as  secretary  to  unpaid  committees  which  were 
organized  in  the  various  industries.  Each  industry  was  represented 
on  its  safety  committee  by  both  employers  and  employees.  Rules 
for  safeguarding  were  outlined  by  each  committee  for  its  own  industry. 
Then  the  industrial  commission  advertised  a  public  hearing  at  which 
the  rules  were  presented  for  further  criticism.  When  finally  drafted 
on  the  basis  of  such  criticism  the  rules  were  issued  through  the  news- 
papers in  the  form  of  administrative  orders  to  go  into  effect  at  the  end 
of  thirty  days  \nth  all  the  force  of  \a,\x.  Under  this  new  system  the 
industry  itself  makes  the  laws  for  its  own  shop  government.  Em- 
ployers and  employees,  with  the  aid  of  impartial  experts,  are  learning 
through  self-expression  the  importance  and  the  practicability  of  the 
now  popular  motto  "Safety  First." 

Other  phases  of  the  problem  of  making  industry  safe  are  to  be 
taken  up  in  the  same  way  until  mechanical  safety  is  supplemented 
by  scientific  sanitation,  until  the  labor  market  is  organized  through 
employment  exchanges,  until  for  women,  at  least,  the  hours  are  regu- 
lated according  to  the  dangers  of  the  occupation  and  wages  are  put  upon 
an  adequate  basis. 

No  longer  is  it  necessary  in  Wisconsin  to  wait  two  long  years  for 
a  session  of  the  legislature  in  order  to  submit  proposals  for  the  proper 
protection  of  the  workers.  No  longer  need  specific  rigid  provisions  be 
drafted  into  bills  and  thrust  upon  the  bewildered  attention  of  the  legis- 
lators while  temporarily  in  session  at  the  state  capitol.  The  legisla- 
ture has  laid  down  the  law  in  a  broad  way ;  the  industrial  commission, 
as  rapidly  as  circumstances  permit,  may  fill  in  the  administrative  de- 
tail. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   417 

If  any  one  objects  to  the  orders  issued  by  the  commission,  there  is 
recourse  in  the  courts.  But  not  to  the  local  magistrate  who  has  for  so 
long  nuUilied  much  labor  legislation.  And  no  injunction  can  be  issued. 
The  appeal  is  first  to  the  circuit  court  of  the  county  which  is  the  seat 
of  the  state  government ;  and  afterward  only  to  the  Supreme  Court 
of  the  state.  But  if  at  any  time  in  the  proceedings  any  new  evidence  as 
to  facts  is  introduced,  the  case  goes  automatically  back  to  the  industrial 
commission  which  may  call  a  new  public  hearing  and  amend  or  reen- 
force  the  order. 

Meanwhile,  under  the  industrial  commission  plan,  the  factory  in- 
spectors, armed  with  simple  rules  drawn  from  the  experience  and  skill 
of  industry,  are  growing  more  confident,  and  likewise  more  respected 
because  more  helpful.  Much  of  their  time  is  now  devoted  to  educa- 
tional work.  Traveling  exhibits  of  photographs  and  diagrams, 
popular  lectures  with  lantern  slides,  illustrated  bulletins  issued  at 
frequent  intervals  according  to  the  need  —  all  of  these  are  revolutioniz- 
ing the  work  of  the  factory  inspector  and  at  the  same  time  are  helping 
to  develop  throughout  the  state  that  true  reverence  for  the  law  which 
Abraham  Lincoln  said  should  become  the  political  religion  of  the 
nation. 

Aside  from  the  steady  growth  of  social  insurance,  it  may  be  expected 
that  within  another  five  years  the  legislatures  in  all  of  the  more  im- 
portant industrial  states  will  cease  to  concern  themselves  much  with 
specific  labor  legislation.  The  work  of  formulating  detailed  regula- 
tions is  rapidly  being  turned  over  to  administrative  commissions  much 
better  fitted  to  develop  scientific  standards  for  the  protection  of  the 
workers. 

This  burden  of  responsibility  for  safeguarding  the  workers,  hitherto 
shifted  about  uneasily  by  the  leaders  of  political  factions  in  legislative 
halls,  is  to  rest  more  definitely  —  and  it  is  hoped  more  securely  — 
upon  a  few  commissioners.  Plenty  there  will  be  to  remind  them  that 
a  commissioner  is  a  person  charged  w^ith  a  commission  or  trust ;  that 
they  as  labor  commissioners  are  charged  with  a  public  trust  and  there- 
fore responsible  to  the  people.  The  people  are  becoming  more  alert, 
better  informed,  more  insistent  that  it  is  a  function  of  government  to 
conserve  the  most  valuable  of  all  of  its  resources,  human  life. 

Is  the  legal  machinery  for  the  administration  of  our  labor  laws 
properly  constructed  and  maintained  to  give  us  maximum  service  with 
minimum  friction  and  expense  ?  What  are  the  main  points  of  strength 
and  weakness?  Which  states  have  administrative  machinery  that 
might  well  serve  as  a  model  for  less  progressive  neighbors?  These 
are  a  few  of  the  interesting  questions  that  ought  to  be  answered  after 
investigations  in  the  field  and  on  fines  that  should  appeal  to  the  imagi- 
nation of  a  great  federal  commission.  But  without  years  of  delay  it  is 
possible  now  for  many  states  to  work  important  changes  which  will 


41 8   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

vastly  increase  the  effectiveness  of  their  labor  laws.  That  the  state 
labor  bureau  officials  are  leading  in  this  movement  and  inviting  the 
cooperation  of  others  is  a  fortunate  circumstance. 


CONSTITUTIONAL  LIMITATIONS   AND   LABOR 
LEGISLATION  i 

By  Ernst  Freund  of  the  College  of  Law,  Chicago  University 

(From  the  Proceedings  of  the  American  Association  for  Labor  Legislation, 
Third  Annual  Meeting,  December  28-30,  1909) 

In  the  development  of  legal  principles  twenty-five  years  is  not  a 
very  long  period.  In  1884  the  body  of  constitutional  doctrine  by 
which  labor  legislation  has  since  been  judged,  was  practically  non- 
existent and  it  is  consequently  a  growth  of  a  span  of  time  within  the 
legal  memory  of  most  of  us.  There  had  been  previously  a  solitary 
decision  of  the  Supreme  Court  of  Massachusetts  ^  in  which  the  Court 
was  obviously  a  good  deal  puzzled  how  to  deal  with  the  objections 
raised,  disposing  of  them  in  a  rather  offhand,  and  not  altogether 
satisfactory,  fashion.  This  dated  back  as  far  as  1876.  In  1877  the 
decision  of  the  Federal  Supreme  Court  in  the  Granger  cases  ^  established 
the  principle  of  public  control  of  economic  interests,  although  without 
a  proper  appreciation  of  the  limits  that  have  since  been  recognized. 
The  control  was  also  asserted  only  with  reference  to  businesses  affected 
with  a  public  interest,  and  a  significant  observation  fell  from  Ch.  J. 
Waite,  that  the  Constitution  does  not  confer  power  upon  the  whole 
people  to  control  rights  which  are  purely  and  exclusively  private. 

The  decision  of  the  New  York  Court  of  Appeals  in  the  Tenement 
Labor  Case  in  1885,"*  was  the  first  to  take  a  decided  stand  against  the 
power  of  the  State  in  a  case  where  labor  was  involved.  The  freedom 
in  that  case,  however,  was  asserted  in  favor  of  the  indi\adual  workman 
and  the  relation  between  employer  and  employees  was  not  directly 
discussed.  The  novel  doctrine  of  freedom  of  contract  between  capital 
and  labor  was  inaugurated  in  1S86  by  two  decisions  ;  one  from  Pennsyl- 
vania,^ the  other  from  Illmois.^  It  is  not  until  the  qo's  that  the  judicial 
mind  can  be  said  to  be  aroused  to  the  realization  that  important  con- 

1  CopjTighted  ;   all  rights  reserved. 

2  Com.  vs.  Hamilton  Mfg.  Co.,  120  Mass.  383. 

'  Munn  vs.  Illinois,  g4  U.S.  113,  and  cases  following. 

■*/«  re  Jacobs,  98  X.Y.  98. 

^  Godcharles  vs.  Wigemun,  131  Pa.  St.  431. 

*  Millet  vs.  People,  117  111.  294. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   419 

stitutional  problems  are  involved  in  labor  legislation.  Yet  the  same 
period  of  time  has  been  long  enough  to  see  nearly  all  the  judges  who 
pronounced  the  leading  decisions  in  the  respective  States  pass  from 
the  bench  and  in  many  instances  the  entire  membership  of  the  court 
has  changed. 

What  then  is  the  legacy  which  this  past  generation  of  judges  has 
bequeathed  to  their  successors  of  the  present  day  ? 

A  survey  of  judicial  decisions  on  labor  legislation  may  be  sum- 
marized as  follows :  The  great  mass  of  labor  statutes  have  not  been 
contested  in  the  courts.  This  by  itself,  must  not  be  taken  to  mean 
that  they  have  been  accepted  as  valid,  for  it  is  notorious  that  a 
great  many  laws  have  never  been  enforced.  Of  these  that  have 
been  questioned  in  the  courts,  practically  all  that  had  any  immediate 
bearing  on  safety,  sanitation,  or  decency,  have  been  sustained,  the  few 
exceptions  being  due  to  special  features  not  going  to  the  root  of  the 
law.^  Neither  the  question  of  the  control  or  restraint  of  organiza- 
tions, nor  that  of  liability  or  compensation  or  insurance,  nor  that  of 
arbitration,  have  as  yet  been  considered  by  the  courts  to  any  extent 
from  a  constitutional  point  of  view.  The  controversy  has  revolved 
mainly  around  three  subjects  :  the  protection  of  labor  organizations, 
the  method  of  payment  of  w^ages,  the  limitation  of  hours  of  labor. 
There  have  been  in  the  neighborhood  of  twenty  decisions  declaring  as 
many  statutes  on  those  points  unconstitutional,  and  while,  with  ref- 
erence at  least  to  the  two  subjects  last  mentioned,  there  have  been 
weighty  decisions  and  opinions  the  other  way  so  that  it  is  difificult  to 
assign  a  distinct  preponderance  of  authority  to  either  side,  it  is  un- 
deniable that  the  adverse  decisions  coming  from  many  different  sec- 
tions of  the  country  have  produced  a  great  impression  upon  the  legal 
profession  and  the  community  at  large  and  created  a  general  sense 
of  uncertainty  as  to  the  extent  of  permissible  legislation. 

It  is  important  to  consider  to  what  extent  this  impression  is  justified. 

I  shall  pass  over  the  cases  dealing  with  the  protection  of  labor  organi- 
zations against  coercion  or  discrimination  practiced  on  the  part  of 
employers  in  hiring  or  discharging  workmen,  not  because  the  problem 
involved  in  the  legislation  is  without  interest  or  importance,  but  be- 
cause, as  the  acts  were  framed  or  as  the  courts  interpreted  them,  the 
issue  has  been  narrowed  down  to  a  point  where  it  is  deprived  of  deeper 
significance. 

If  this  legislation  necessarily  means  that  a  relation  is  to  be  forced 
upon  the  employer  which  the  employee  is  free  to  let  alone  or  discon- 
tinue, it  is  not  suq^rising  that  the  courts  have,  with  practical  unanim- 
ity, pronounced  against  its  validity.  It  deserves  further  consideration 
whether  it  is  not  possible  to  frame  a  valid  law  which  will  respect 
the  right  of  the  employer  to  form  and  sever  relations  of  employment 

'  See,  e.g.,  Starne  vs.  People,  222  111.  1S9. 


420   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

with  the  same  freedom  as  that  enjoyed  by  the  employee,  and  will  yet 
compel  him  to  maintain  at  least  an  outward  attitude  of  neutrality 
toward  labor  organizations  by  forbidding  offensive  threats  and  other 
forms  of  coercion  and  intimidation  either  to  harm  or  to  benefit  them. 

The  cases  concerning  truck  and  other  wage  payment  acts  have  been 
conspicuous  for  the  part  which  they  have  played  in  the  judicial  history 
of  labor  legislation,  those  concerning  hours  of  labor  for  the  general 
interest  which  they  have  drawn  to  the  issues  involved.  Both  pre- 
sented the  issues  between  individual  liberty  and  the  power  of  public 
regulation,  but,  as  the  further  discussion  will  show,  in  very  different 
aspects,  althought  it  is  customary  to  cite  them  indiscrimmately. 

It  will  be  of  advantage  to  recall  to  the  mind  very  briefly  the  course 
of  the  judicial  decisions.  The  keynote  was  struck  by  the  brief  and 
pointed  denunciation  of  a  store  order  act  which  is  found  in  the  first 
case  already  referred  to,  decided  by  the  Supreme  Court  of  Pennsyl- 
vania.^ The  Act  was  declared  to  be  an  infringement  alike  of  the  right 
of  the  employer  and  the  employee ;  "More  than  this,  it  is  an  insulting 
attempt  to  put  the  laborer  under  a  legislative  tutelage  which  is  not 
only  degrading  to  his  manhood,  but  subversive  of  his  rights  as  a  citizen 
of  the  United  States.  He  may  sell  his  labor  for  what  he  thinks  best, 
whether  money  or  goods,  just  as  his  employer  may  sell  his  iron  or  coal, 
and  any  and  every  law  that  proposes  to  prevent  him  from  so  doing 
is  an  infringement  of  his  constitutional  privileges  and  consequently 
vicious  and  void." 

The  cases  in  Illinois  involving  coal  weighing,  store  order,  and  weekly 
payment  legislation,  were  less  pronounced.^  In  annulling  the  statutes 
in  question  the  elements  of  discrimination  which  the  court  found  in 
them  were  chiefly  relied  upon.  The  insistence  upon  the  freedom  of 
contract,  however,  which  was  at  first  subordinate,  was  gradually  more 
emphasized  and  finally  the  Supreme  Court  declared  it  to  have  been 
a  controlling  feature  of  those  decisions.^  West  Virginia  and  Indiana 
have  been  uncertain  in  their  position  and  their  decisions  are  difficult 
to  reconcile  with  each  other.  In  both  States  the  latest  rulings  are 
favorable  to  the  legislation,  but  with  qualifications.''  Missouri  in 
1893,  against  a  strong  dissent,  condemned  a  store  order  act,  likewise 
relying  mainly  upon  unjustifiable  discrimination.^  But  it  took  the 
broader  ground  of  constitutional  liberty  when  the  legislation  was 
made  general  and  was  again  contested.®     Decisions  condemning  the 

1  Godcharles  vs.  Wigeman,  113  Pa.  St.  431. 

2  Millet  vs.  People,  117  111.  294;  Frorer  vs.  People,  141  111.  171 ;  Braceville  Coal  Co.  vs. 
People,  147  111..  66;    Ramsey  vs.  People,  142  111.  380;   Harding  vs.  People,  160  lU.  459. 

3  Vogel  vs.  Pekoe,  157  III.  339. 

4  State  vs.  Fire  Creek  Co.,  33  W.Va.  188;  Peel  Splint  Coal  Co  vs.  State,  36  W.Va.  802; 
Hancock  vs.  Yaden,  121  Ind.  366  ;  Republic  Iron  &  Steel  Co.  vs.  State,  160  Ind.  379 ;  Seeley- 
ville  Coal  &  Mining  Co.  vs.  McGlosson,  166  Ind.  561. 

'  State  vs.  Loomis,  115  Mo.  307. 

« State  vs.  Missouri  Tie  &  Timber  Co.,  181  Mo.  536. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   421 

attempt  to  control  the  method  or  time  of  payment  of  wages  are  found 
moreover  in  Ohio,'  Kansas^  and  Texas. ^  Against  these  must  be  set 
the  authority  of  the  United  States  Supreme  Court/  which  in  two 
decisions  has  strongly  asserted  the  legislative  power  to  protect  the 
workman  against  methods  of  paying  or  computing  his  wages  which 
may  operate  to  his  disadvantage.  The  same  position  is  taken  by  a 
number  of  state  courts,^  but  it  should  be  observed  that  Missouri 
maintained  its  ground  after  the  decision  of  the  Supreme  Court  of  the 
United  States  had  been  rendered.  It  would  indeed  be  futile  to  ignore 
the  trend  of  judicial  opinion  which  is  represented  in  the  holdings  which 
are  adverse  to  this  kind  of  legislation,  or  to  dispose  of  the  matter  by 
attempting  to  establish  a  preponderance  of  authority  against  them 
by  simply  counting  up  the  number  of  decisions  on  either  side. 
The  decisions  regarding  hours  of  labor  stand  as  follows  : 
In  1876  Massachusetts  sustained  a  ten-hour  day  for  women ;  ^ 
Nebraska  annulled  a  general  ten-hour  day  (subject  to  certain  excep- 
tions) in  1894,^  and  Illinois,  an  eight-hour  day  for  women  in  1895;^ 
Utah  in  1896  sustained  an  eight-hour  day  for  mines  and  smelting 
works. ^  This  was  confirmed  by  the  United  States  Supreme  Court  in 
1898,'"  but  in  1899  the  same  legislation  was  declared  unconstitutional 
in  Colorado. '^  In  1900  an  inferior  court  in  Pennsylvania  sustained  a 
twelve  hour  day  for  w^omen,  limited  to  60  hours  per  week.'^  In  1902 
Nebraska  and  Washington  sustained  ten-hour  days  for  women. ^^  In 
1903  Missouri  sustained  an  eight-hour  day  for  mines,''*  and  in  1904  a 
similar  decision  was  rendered  in  Nevada.'^  In  1904  New  York 
sustained  a  ten-hour  day  for  bakers,'^  but  was  reversed  by  the  United 
States  Supreme  Court  which  declared  the  law  unconstitutional 
in  1905.'^  A  ten-hour  day  for  women  was  sustained  in  Oregon  in 
1906 ;  '^  but  a  law  forbidding  the  night  labor  of  women  was  declared 

1  Re  Preston,  63  Oh.  St.  428. 

'  State  vs.  Haiiii,  61  Kan.  146. 

'Jordan  vs.  State,  51  Tex.  Cr.  531. 

^  Knoxville  Iron  Co.  m.  Harbison,  183  U.S.  13,  aff'g  103  Tenn.  421 ;  McLean  w.  Arkansas, 
211  U.S.  53g. 

^  Opinions  of  Justices  in  Massachusetts,  163  Mass.  580;  Colorado,  23  Col.  504;  South 
Carolina,  47  S.E.  695;  Washington,  88  Pac.  212;.  Vermont,  64  Atl.  logi.  There  are 
decisions  sustaining  the  legislation  with  reference  to  corporations  in  Arkansas,  Maryland 
and  Rhode  Island. 

«  Com.  vs.  Hamilton  Mfg.  Co.,  120  Mass.  383. 

'  Low.  vs.  Rees  Printing  Co.,  41  Neb.  127. 

*  Ritchie  vs.  People,  15s  111.  98. 

'  14  Utah  71,  96. 

"Holden  vs.  Hardy,  169  U.S.  366. 

"  Re  Morgan,  26  Colo.  415. 

12  Com.  vs.  Bealtie,  15  Pa.  Super  S- 

"  Wcnham  vs.  State,  65  Neb.  400;  State  vs.  Buchanan,  29  Wash.  603. 

"State  vs.  Cantwell,  179  Mo.  245. 

'^  Re  Boyce,  27  Nev.  299. 

'*  People  vs.  Lochner,  177  N.Y.  145. 

"  Lochner  vs.  New  York.  198  U.S.  45. 

"  State  vs.  Muller,  48  Or.  252. 


422   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

unconstitutional  in  New  York  in  1907.^  In  the  following  year, 
however,  the  decision  in  the  Oregon  case  was  affirmed  by  the  Federal 
Supreme  Court.^  A  ten-hour  day  law  is  now  before  the  Illinois  Su- 
preme Court.  The  decisions  stand  eleven  to  five  in  favor  of  regula- 
tion, in  the  United  States  Supreme  Court  two  to  one ;  with  regard  to 
w^omen  the  proportion  is  six  to  two  ;  wnth  regard  to  men,  five  to  three. 
It  is  moreover  proper  to  advert  to  some  facts  which  bear  upon  the  ad- 
verse decisions.  In  Nebraska  the  unfavorable  ruling  is  offset  by  a 
later  one  that  is  favorable.  The  decision  in  Colorado  was  followed  by 
a  constitutional  amendment  which  would  leave  a  new  law  subject 
Only  to  the  Federal  Constitution,  which  has  been  construed  in  favor 
of  it.  The  decision  on  the  night  work  of  women  in  New  York  was 
dictated  by  submission  to  the  supposed  doctrine  of  the  United  States 
Supreme  Court,  the  decision  of  that  court  in  the  case  from  Oregon 
not  having  then  been  rendered.  And  with  reference  to  the  first  case 
from  Illinois,  it  might  be  deemed  advisable  to  suspend  judgment  until 
the  pending  case  shall  be  decided.  Under  these  circumstances  there 
might  be  some  temptation  to  make  light  of  the  decisions  adverse  to 
the  legislative  power.  In  view  of  the  position  taken  by  the  Federal 
Supreme  Court  with  reference  to  the  bakers'  ten-hour  law,  this  would 
be  obviously  a  mistake.  And  it  is  to  be  noted  particularly  that  there 
is  not  one  among  the  decisions  which  have  sustained  this  legislation 
that  does  not  clearly  intimate  that  if  the  legislature  should  overstep 
certain  not  very  clearly  defined  limits  in  this  form  of  legislation,  the 
courts  would  be  bound  to  afford  relief. 

It  is  this  general  adhesion  to  the  principle  of  limitation  and  control 
which  is  significant.  Its  recognition  implies  a  fundamental  difference 
between  the  European  and  our  conception  of  legislative  power.  In 
all  civilized  countries  the  legislature  acknowledges  itself  bound  to 
the  observance  of  certain  fundamental  principles  of  individual  right, 
and  although  without  judicial  sanction,  these  principles  are  on  the 
whole  scrupulously  and  in\dolably  respected.  But  these  principles 
are  not  supposed  to  include  the  acceptance  of  any  theory  of  economic 
liberty.  However  firmly  economic  principles  may  be  adhered  to, 
they  are  still  regarded  as  matters  of  policy  and  not  of  right,  and  hence 
within  the  acknowledged  control  of  the  legislature. 

There  is  no  evidence  whatever  to  indicate  that,  until  within  a  rel- 
atively recent  period,  our  general  constitutional  theory  of  legislative 
power  was  different,  except  that,  through  the  exercise  of  a  power 
nowhere  conferred  in  express  terms,  the  judicial  sanction  which  had 
been  lacking  in  Europe  had  come  to  be  supplied. 

Where  fundamental  rights  were  sought  to  be  asserted  against  the 
exercise  of  general  legislative  power,  they  were  invariably  associated 

1  People  vs.  Williams,  189  N.Y.  131. 
*  Muller  vs.  Oregon,  208  U.S.  412. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   423 

with  the  impairment  of  the  obligation  of  contracts,  which  implied  a 
vested  right.  The  standard  treatises  on  constitutional  law  contained 
no  suggestion  that  the  due  process  clauses  could  be  relied  upon  to  build 
up  new  limitations,  and  when  Mr.  Justice  Field  in  his  dissenting 
opinion  in  Munn  vs.  Illinois  contended  for  a  limitation  of  the  legisla- 
tive power  upon  this  basis,  he  was  in  a  position  to  cite  any  authority  in 
support  of  his  view. 

It  was,  therefore,  an  innovation  upon  established  constitutional 
doctrine  when  the  labor  decisions  recognized  traditional  immunities 
from  public  control  as  positive  and  primary  constitutional  rights  in 
the  face  of  which  legislation  would  have  to  justify  itself  before  the 
courts  by  showing  some  affirmative  ground  of  interference. 

The  supposed  advance  or  gain  consisted  in  extending  the  protection 
previously  accorded  only  to  the  vested  right  of  property,  to  a  merely 
potential  right,  the  capacity  to  earn,  to  use  one's  faculties  for  individual 
advancernent  —  on  the  face  of  it  a  principle  of  strong  democratic 
implication.  This  implication  was  further  emphasized  by  using  the 
phrase  that  labor  was  property.  The  general  formula,  however, 
under  which  the  doctrine  was  proclaimed  was  that  of  freedom  of  con- 
tract. 

The  terms  used  were  calculated  to  convey  the  impression  that  the 
rights  involved  were  those  of  the  workman  as  well  as  of  the  employer. 
This  is  not  entirely  without  plausibility  as  far  as  hours  of  labor  are 
concerned ;  ^  with  reference  to  the  wage  payment  acts  it  is  an  obvious 
fallacy,  unless  the  liberty  to  compete  for  employment  upon  unfavorable 
terms  be  regarded  as  a  valuable  right. 

Payment  at  frec[uent  intervals  or  redemption  of  store  orders  in  cash 
is  a  pure  benefit*  and  in  having  the  right  to  this  benefit  made  inalien- 
able, the  workman  surrenders  absolutely  nothing  except  through 
the  remote  contingency  that  the  obligations  which  the  law  imposes 
upon  the  employer,  may  deter  from  entering  the  business  or  drive 
him  into  insolvency,  and  that  consequently  the  opportunity  to  earn 
a  living  may  be  diminished.  Where  an  arrangement  operates  neces- 
sarily to  the  detriment  of  one  party  of  the  contract,  its  prohibition 
cannot  in  any  just  sense  be  denounced  as  an  infringement  upon  his 
liberty.  Under  such  circumstances  to  proclaim  a  freedom  of  contract 
is  a  misleading  phrase  which  obscures  the  real  issue  involved  in  this 
legislation. 

The  only  real  right  at  issue  in  the  wage  payment  acts  is  that  of  the 
employer,  the  right  of  the  owner  of  a  business  to  direct  its  internal 
arrangements  according  to  his  own  discretion. 

Let  us  remember  that  a  century  after  the  beginning  of  factory 

■  That  even  organized  labor  may  have  an  interest  in  not  having  hours  of  labor  reduced 
by  law,  is  shown  by  the  opposition  of  strong  sections  of  English  coal  miners  to  the  intro- 
duction of  the  eight-hour  law.     See  Ashley,  Adjustment  of  Wages,  pp.  80-82. 


424       LABOR  LAWS   AND   THE  LABOR   CONTRACT 

legislation,  American  courts  questioned  whether  the  police  power  was 
properly  exercised  where  there  was  no  danger  except  to  employees 
who  voluntarily  incurred  it/  that  the  same  idea  is  still  potent  in  the 
law  of  liability,  that  the  State  even  now  does  not  undertake  to  regu- 
late purely  domestic  arrangements,  although  those  exposed  to  the 
consequences  of  mismanagement  and  neglect  do  not  enter  voluntarily 
and  are  not  free  to  escape,  and  that  as  a  matter  of  history  the  law  of 
employment  has  grown  out  of  that  of  domestic  control,  and  we  may 
understand  something  of  the  spirit  that  says :  The  gates  are  mine  to 
open  as  the  gates  are  mine  to  close,  and  I  set  my  house  in  order. 

There  can  of  course  to-day  be  no  reasonable  doubt  of  the  right  of 
the  State  to  legislate  under  the  old  established  heads  of  the  police 
power,  for  the  protection  of  the  employees  of  the  business  as  well  as 
of  the  general  public,  and  these  would  include  not  only  safety,  health, 
morals  and  decency,  but  also  the  protection  against  fraud,  and  certain 
forms  of  oppression  and  exploitation  which  the  history  of  legislation 
has  treated  as  equivalent  to  fraud. 

If  it  were  possible  to  establish  that  the  various  forms  of  statutes  re- 
lating to  the  payment  of  wages  were  aimed  merely  at  the  suppression 
of  fraudulent  or  unconscionable  practices,  they  would  clearly  fall 
within  the  principle  of  the  traditional  exercise  of  the  police  power  and 
the  case  would  be  plain.  With  reference  to  truck  legislation,  this 
view  was  strongly  and  ably  pressed  in  a  dissenting  opinion  delivered 
in  the  first  Missouri  case,  and  the  antiquity  of  this  legislation  which 
reaches  back  to  the  middle  of  the  fifteenth  century  indicates  the  exist- 
ence of  widespread  and  old  grievances  in  this  matter.  There  is  also 
considerable  evidence  tending  to  show  that  the  coal  weighing  acts  were 
occasioned  by  the  prevalence  of  methods  which  were  at  least  capable 
of  being  abused  to  the  prejudice  of  the  mine  workers.  From  this 
point  of  view  it  would  be  quite  impossible  to  support  the  denunciation 
of  this  legislation,  so  far  as  its  general  principle  is  concerned,  upon 
any  consistent  theory. 

Without  very  much  fuller  data  than  seem  to  be  available  concerning 
conditions  in  different  industries  and  localities,  it  is  difficult  to  pass 
final  judgment  on  the  character  and  effect  of  the  practices  which  the 
statutes  sought  to  abolish. ^    With  reference  to  the  requirement  of 

1  Re  Morgan,  26  Col.  415.  "How  can  an  alleged  law  that  purports  to  be  the  result  of 
an  exercise  of  the  police  power,  be  such  in  reality,  when  it  has  for  its  only  object,  not  the 
protection  of  others  or  the  public  health,  safety,  morals  or  general  welfare,  but  the  welfare 
of  him  whose  act  is  prohibited,  when,  if  committed,  it  will  injure  him  who  commits  it  and 
him  only  ?  ". 

In  re  Jacobs,  98  N.Y.  gS,  "To  justify  this  law  it  would  not  be  sufficient  that  the  use  of 
tobacco  may  be  injurious  to  some  persons  or  that  its  manipulation  may  be  injurious  to 
those  who  are  engaged  in  its  preparation  and  manufacture."  Quoted  with  approval  in 
Ritchie  vs.  People,  155  111.  98. 

*  There  is  some  testimony  as  to  condi'ions  in  the  Colorado  mining  industry  in  the  Report 
of  the  Industrial  Commission,  Vol.  XII,  pp.  kv-lxxii,  as  to  Illinois,  see  the  Report  of 
Bureau  of  Labor  Statistics,  1890,  Appendi.'v. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   425 

the  weekly  or  bi-weekly  payment  of  wages  especially  it  must  be  ob- 
served that  the  customary  practice  of  longer  intervals  of  payment  not 
only  could  not  in  any  proper  sense  be  termed  an  abuse  or  form  of  op- 
pression, but  that  the  new  requirement,  where  sustained,  in  many 
cases  worked  such  hardship  that  its  rigorous  enforcement  proved  at 
first  impracticable.'^ 

However  this  may  be,  the  controlling  fact  for  the  purpose  of  under- 
standing the  decisions  is  that  the  courts  declined  to  see  in  the  forbidden 
practices  merely  an  unconscionable  form  of  oppression  or  exploitation, 
but  treated  the  matter  as  one  of  fair  controversy  between  employer 
and  employee. 

The  legitimacy  of  this  point  of  view  assumed  or  conceded,  the  con- 
flict of  decisions  turns  upon  a  very  important  issue.  The  problem 
would  be  this :  If  the  old  established  landmarks  of  the  police  power 
are  abandoned,  at  what  point  is  the  right  of  the  owner  to  control  his 
own  business  and  the  relation  to  his  employees  secure  from  legislative 
interference? 

The  Granger  cases  had  established  the  principles  that  certain  classes 
of  business  of  a  monopolistic  character  were  subject  to  control  in  the 
economic  interest  of  the  general  community. 

Was  there  an  analogous  principle  according  to  which  the  employ- 
ment of  labor  might  be  regulated  in  the  economic  interest  of  the  em- 
ployees? To  some  of  our  courts  this  undoubtedly  seemed  to  be  the 
issue  involved  in  the  legislation,  the  validity  of  which  was  contested 
before  them,  and  it  is  easy  to  gather  from  the  tone  of  the  decisions 
that  they  considered  a  determined  resistance  to  the  new  principle 
necessary.  Some  of  the  adverse  decisions  certainly  lend  themselves 
to  the  construction  that  the  principle  was  repudiated  without  any 
qualification.  In  annulling  the  statutory  requirements,  they  did  not 
rely  upon  the  hardship  or  injustice  they  inflicted  upon  the  employers. 
The  points  in  which  the  legislature  had  sought  to  impose  terms  upon 
the  contract  of  employment  had  not  touched  any  very  vital  elements  in 
the  relation.  In  Illinois,  where  the  legislation  was  chiefly  aimed  at 
conditions  in  the  coal  mines,  all  the  points  successfully  contested  before 
the  courts  were  subsequently  conceded  to  the  miners  by  the  free 
agreement  of  the  operators.  This  very  course  of  development,  how- 
ever, shows  that  there  was  no  imperative  need  of  legislative  interfer- 
ence. 

On  the  other  hand,  the  courts  which  have  sustained  the  statutes  in 
question  have  done  so  in  a  half-hearted  way  without  committing  them- 
selves to  more  than  the  particular  provisions  absolutely  required. 
They  stand,  apparently,  upon  no  principle  but  the  equities  of  the 
legislation,  and  while  recognizing  limitations,  refuse  to  define  them.  It 
would  be  pure  speculation  to  attempt  to  predict  upon  what  principles 

1  See  New  York  Factory  Inspectors  Report,  iSgo,  pp.  102,  103. 


426   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

limitations  will  be  eventually  worked  out.  The  difficulty  of  assigning; 
limits  to  the  power,  once  it  is  recognized,  may  serve  to  explain  the  un- 
compromising stand  taken  against  its  recognition  at  the  outset  in  so 
many  jurisdictions. 

Under  a  system  of  elective  judges  holding  office  for  fixed  terms,  it  is 
at  least  a  fair  presumption  that  a  principle  involving  questions  of  pub- 
lic policy  cannot  gain  a  strong  foothold  if  squarely  opposed  to  gener- 
ally prevailing  notions  of  justice.  More  than  once  in  recent  times  the 
courts  have  spoken  of  the  inequality  between  the  parties  to  the  labor 
contract  as  justifying  legislative  interference.  If  this  inequality  were 
hopeless  or  permanent,  the  so-called  doctrine  of  freedom  of  contract 
would  be  opposed  to  every  principle  of  social  justice.  If  it  can  be 
maintained,  it  is  only  because  there  is  some  possibility  of  contracting 
on  equal  terms  through  the  power  of  collective  bargaining.  Constitu- 
tional limitations  upon  the  power  to  legislate  in  the  interest  of  labor 
would,  in  other  words,  be  impracticable  were  it  not  for  the  fact  that 
organization  furnishes  a  substitute  for  legislation. 

Two  questions  suggest  themselves  in  this  connection,  which  at  the 
same  time  may  demand  an  answer  : 

1.  If  the  adjustment  of  labor  difficulties  is  to  be  left  entirely  to  the 
power  of  combination,  will  not  the  State  be  ultimately  compelled  to 
have  a  voice  in  the  control  of  its  organization?  We  have  seen  that 
in  recent  years  the  political  party  has  thus  been  treated  as  an  instru- 
ment of  government,  and  in  connection  with  the  machinery  of  the 
election  laws  has  become  an  object  of  legal  regulation.  If  the  labor 
organization  is  in  a  similar  way  essential  to  the  working  of  the  indus- 
trial system,  a  similar  result  may  have  to  follow.  State  regulation 
may  thus  come  at  this  point  if  repudiated  at  the  other. 

2.  How  should  the  attitude  of  the  state  be  affected  by  the  absence 
of  organization  ?  Mr.  Justice  Brewer,  in  the  Oregon  case,  seemed  in- 
clined to  assign  to  women  an  inferior  political  status,  relying  upon 
their  dependent  nature  and  other  temperamental  peculiarities.  It 
would  have  been  more  satisfactory  if  he  had  pointed  out  that  the  in- 
dustrial work  of  women,  owing  to  the  dominating  influence  of  domes- 
tic functions  or  prospects,  is  of  an  adventitious  rather  than  of  a  pro- 
fessional character,  and  that  consequently  the  inducement  and  the 
opportunity  for  organization  is  seriously  diminished.  An  argument 
for  larger  control  might  be  placed  on  this  ground,  to  which  women 
could  take  no  just  exception.  Similar  considerations  might  apply  in 
the  other  classes  of  labor  which,  owing  to  peculiar  conditions,  must 
remain  without  effective  organization,  and  the  exceptional  treatment 
of  sailors  may  be  explained  upon  this  basis. 

There  are,  moreover,  two  conditions  imphed  in  the  acceptance  of 
collective  voluntary  effort  as  a  substitute  for  legislation :  one,  that  it 
prove  equal  to  the  adequate  performance  of  its  functions,  the  other. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   427 

that  the  power  of  organization  be  not  used  in  such  a  manner  as  to  make 
the  substitution  of  the  power  of  the  state  a  practical  necessity. 

These  are  serious  but  undeniable  qualifications  attaching  to  the 
operation  of  the  prevailing  constitutional  theory. 

If  there  could  be  any  serious  doubt  of  the  hold  which  this  theory  has 
upon  our  courts,  it  would  be  dispelled  by  a  study  of  the  decisions  con- 
cerning hours  of  labor.  Contrary  to  the  impression  produced  by 
the  variety  of  rulings,  these  cases  have  given  rise  to  no  serious  conflict 
of  principles.  The  courts  seem  unanimous  in  the  view  that  the  right 
of  the  workman  to  utilize  his  capacity  for  work  is  a  valuable  constitu- 
tional right  which  will  yield  to  statutory  restraints,  where  excessive 
labor  invofves  some  appreciable  danger  to  the  particular  class  of  em- 
ployees or  to  the  community,  but  not  where  it  is  only  a  question  of 
realizing  those  aims  and  ideals  which  are  involved  in  the  eight-hour 
day. 

The  conflict  of  decisions  seems  to  be  entirely  due  to  the  manner  in 
which  this  principle  is  applied.  Conceding  that  it  requires  some 
tangible  element  of  danger  to  compel  a  reduction  of  hours  of  labor, 
the  existence  or  non-existence  of  this  danger  is  a  question  of  fact.  The 
fact  may  be  notorious,  or  the  relevant  conditions  may  be  doubtful  and 
obscure,  and  ascertainable  only  by  special  study  and  observation.  It 
is  the  latter  contingency  which  creates  the  whole  difficulty  in  this 
branch  of  labor  legislation. 

A  theory  has  gained  considerable  currency  according  to  which  the 
courts  judge  of  the  validity  of  the  grounds  upon  which  legislation  is 
enacted,  but  the  actual  existence  of  the  conditions  which  give  the  ab- 
stract ground  concrete  reality  —  the  exigency  —  is  a  matter  for  the 
legislature  to  determine.^ 

The  faithful  application  of  this  theory  would,  in  many  cases,  amount 
to  a  total  surrender  of  judicial  control.  It  would  only  be  necessary 
to  entitle  an  act  for  the  limitation  of  hours  of  labor  as  an  act  to  safe- 
guard the  health  of  those  engaged  in  it,  or  to  make  a  recital  to  that 
effect,  in  order  to  insure  the  validity  of  the  act  in  all  cases  in  which  the 
maximum  number  of  hours  was  not  absurdly  low.  Would  it  be 
seriously  contended  that  such  a  title  or  recital  would  have  saved  the 
women's  eight-hour  law  in  Illinois,  or  the  bakers'  ten-hour  law  in 
the  Supreme  Court  of  the  United  States  ?  It  certainly  did  not  help 
the  tenement  labor  law  in  New  York,  that  it  designated  itself  as  an 
act  to  improve  the  public  health,  and  in  the  Lochner  case  the  Supreme 
Court  expressly  denies  that  it  is  bound  by  the  proclaimed  purpose 
of  the  statute.      No  other  construction  can  be   placed   upon  these 

1  It  was  first  enumerated  by  the  Supreme  Court  of  Illinois  in  Lake  View  vs.  Rose  Hill 
Cemetery  Co.,  70  111.  gi,  195  :  "As  a  general  proposition  it  may  be  stated  it  is  the  province 
of  the  lawmaking  power  to  determine  when  the  exigency  exists  calling  into  exercise  this 
(the  police)  power.     What  are  the  subjects  of  its  exercise,  is  clearly  a  judicial  question." 


428   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

decisions  than  that  the  courts  assume  the  power  to  look  into  the 
question  of  fact. 

Concede  that  there  are  constitutional  rights  which  should  not  be 
impaired  unless  some  danger  to  the  public  welfare  demands  it,  concede 
the  possibility  of  the  enactment  of  measures  impairing  these  rights 
although  the  danger  does  not  in  fact  exist,  and  it  follows  that  the 
judicial  protection  of  constitutional  rights  may,  under  circumstances, 
involve  the  c|uestioning  of  the  legislative  judgment  which  is  implied 
in  the  passage  of  the  statute.  And  every  one  knows  that  the  supposed 
contingency  is  not  wholly  imaginary.  The  theory  of  the  conclusive- 
ness of  the  legislative  finding  of  fact,  therefore,  not  only  is  not  followed, 
but  it  cannot  be  followed,  if  constitutional  rights  are  to  be  effectually 
protected  by  the  courts. 

The  requirem.ent  of  due  process  is  now  generally  applied  to  legisla- 
tion. Were  it  applied  in  its  original  and  proper  sense,  it  would  mean 
that  the  legislature  must  hear  and  determine  with  at  least  some  of  the 
guaranties  of  impartiality  that  are  supposed  to  belong  to  judicial 
procedure.  That  would  not  be  an  extraordinary  demand,  and  perhaps 
at  some  future  time  the  legislature  will  voluntarily  satisfy  it.  But  as 
long  as,  under  the  constitutions,  the  legislative  bodies  have  absolute 
control  over  their  own  rules,  the  courts  obviously  cannot  set  up  any 
procedural  standards  for  legislative  action  upon  compliance  with  which 
they  may  insist.  There  is  consequently  no  formal  test  by  which  the 
courts  can  judge  the  fairness  of  the  legislative  judgment.  Upon  what 
basis  then  may  they  exercise  their  control,  if  there  is  serious  doubt 
as  to  the  reality  of  the  exigency?  The  question  presents  a  peculiar 
and,  in  a  manner,  unprecedented  problem.  The  courts  are  required 
to  take  cognizance  of  questions  of  fact,  which  are  not  so  notorious  that 
judicial  notice  may  be  taken  of  them,  and  which  yet  cannot  be  subject 
to  the  ordinary  rules  of  evidence  since  they  are  part  of  the  law  of  the 
case.  The  testimony  of  experts  has  in  some  cases  been  rejected. 
"If  the  constitutionality  of  all  laws  enacted  for  the  promotion  of  public 
health  and  safety  can  be  assailed  in  this  manner,"  says  the  Supreme 
Court  of  Missouri  vs.  Cantwell,  179  Mo.  245,  "  truly  and  sadly  would  it 
be  declared  that  our  laws  rest  upon  a  very  weak  and  unstable  founda- 
tion." 1 

Conceivably  the  court  might  with  the  aid  of  counsel  enter  upon  an 
independent  investigation  of  the  relevant  facts  and  conditions,  and 
determine  for  itself  the  preponderance  of  evidence  as  to  the  existence 
or  non-existence  of  the  exigency.  Assuming  that  the  legislative  con- 
clusion is  not  to  be  trusted  implicitly,  and  considering  that  it  is  the  ob- 
scure and  half  understood  agencies,  concerning  which  it  is  easiest  to 
create  exaggerated  impressions  and  apprehensions,  and  which  can 

1  Expert  testimony  was  admitted  in  the  Oleomargarine  case  in  New  York :  People  vs. 
Marx,  99  N.Y.  377. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   429 

best  be  made  to  serve  special  interests,  such  a  course  would  perhaps 
furnish  the  only  adequate  protection  to  private  rights.  However 
this  is  not  the  practice,  and  in  many  cases  would  be  impracticable. 
The  courts  could  not  command  the  necessary  funds  for  an  independent 
examination,  and  the  result  would  be  that  the  more  resourceful  of 
the  two  parties  would  succeed  in  presenting  the  stronger  case.  Some- 
thing less  must  therefore  be  sufficient. 

But  why  should  not  the  courts  demand  in  cases  of  genuine  doubt, 
that  the  legislative  judgment  be  supported  by  a  respectable  body  of 
fact  and  opinion  accessible  to  the  public,  and  sufficient  in  strength 
that  it  might  reasonably  have  persuaded  the  legislature  of  the  existence 
of  the  exigency?  Such  a  course  would  furnish  a  safeguard,  not  ade- 
quate in  all  cases,  yet  sufficient  to  protect  against  a  gross  abuse  of 
power,  and  the  best  available  under  the  circumstances.  The  signifi- 
cance of  the  briefs  of  Mr.  Louis  Brandeis  in  the  women's  ten-hour 
cases  lies  in  the  compliance  with  this  unexpressed  demand. 

For  the  present,  however,  there  is  no  certain  standard  as  to  what  the 
courts  require  or  even  as  to  whether  they  require  any  evidence.  The 
Supreme  Court  of  the  United  States  in  Holden  vs.  Hardy,  the  Utah 
eight-hour  case,  speaks  of  "reasonable  grounds  for  believing  that  the 
legislative  determination  is  supported  by  the  fact."  But  it  does  not 
appear  how  these  reasonable  grounds  are  to  be  made  manifest.  And 
as  long  as  this  is  a  matter  of  speculation  there  must  be  a  considerable 
amount  of  arbitrariness  in  the  exercise  of  judicial  control.  Judicial 
may  be  substituted  for  legislative  conjecture,  and  it  is  quite  as  possible 
that  right  legislation  will  be  annulled  as  that  wrong  legislation  will  be 
sustained.  After  the  eight-hour  law  for  miners  had  been  sustained, 
the  disapproval  of  the  ten-hour  law  for  bakers  was,  to  say  the  least,  a 
grave  inconsistency. 

The  course  of  decisions  in  the  matter  of  hours  of  labor  reveals  a 
judicial  censorhip  which  is  based  upon  no  fixed  principle,  and  which, 
however  conscientiously  exercised,  cannot  be  expected  to  inspire  that 
confidence  which  is  essential  to  the  well  working  of  judicial  institu- 
tions. The  substitution  of  some  intelligible  and  uniform  principle  of 
control  is  therefore  a  requirement  of  policy  as  well  as  of  justice.  The 
analogy  of  the  appellate  review  of  judicial  decisions  of  fact  suggests 
such  a  principle,  approved  by  long  experience.  Applied  to  the  statutes 
in  question,  it  would  mean  that  there  must  have  been  evidence  of  facts 
within  the  reach  of  the  legislature  sufficient  to  support  its  judgment 
that  an  exigency  existed  for  its  interference.  Such  a  test  would  not 
be  unduly  rigorous ;  and  its  effect  upon  legislation  itself  could  not  be 
otherwise  than  salutary.^ 

1  The  same  theory  of  judicial  control  might  also  be  applied  to  the  problem  of  special 
legislation.  In  most  cases  it  is  eiUircly  a  question  of  fact  whether  there  is  invalid  discrimina- 
tion or  valid  classification.  If  it  were  understood  that  the  need  of  dilTerentiation  must  be 
established  to  the  satisfaction  of  the  courts,  much  of  the  prevailing  uncertainly  apparent 
and  arbitrariness  of  this  phase  of  constitutional  law  would  disappear. 


430   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

For  the  protection  of  constitutional  rights  such  a  principle  would  be 
more  important  than  the  insistence  upon  those  limitations  of  a  more 
substantive  character  which  within  so  recent  a  period  have  sought  to 
crystallize  economic  theories  into  rules  of  constitutional  law. 

In  the  case  of  Muller  vs.  Oregon,  the  court  declared  it  to  be  the 
peculiar  nature  of  a  written  constitution,  that  it  places  in  unchanging 
form  limitations  upon  legislative  action  and  gives  a  permanence  and 
stability  to  popular  government  which  otherwise  would  be  lacking. 
The  applicability  of  this  observation  to  the  limitations  upon  labor 
legislation  may  well  be  doubted. 

These  limitations  are  entirely  the  product  of  judicial  action.  They 
may  be  supposed  to  have  been  created  in  conformity  to  widespread 
and  ruling  convictions  as  to  the  nature  of  our  institutions,  but  these 
convictions  bear  no  guaranty  of  permanence. 

Our  views  on  social  relations  and  public  control  may  undergo  con- 
siderable changes.  A  certain  standard  of  living  may  come  to  seem  as 
important  as  the  preservation  of  health ;  industrial  employment  may 
become  affected  with  a  public  interest,  and  regulation  may  supersede 
contract  as  contract  has  superseded  statutes. 

If  such  changes  come  it  will  require  no  constitutional  amendment  to 
give  them  relief.  It  has,  perhaps,  been  a  matter  of  deliberate  judicial 
policy  that  this  branch  of  the  law  has  been  left  the  least  exact  in  our 
constitutional  system ;  not  one  of  the  principles  of  limitation  has  been 
formulated  in  so  explicit  a  manner  that  its  abandonment  would  re- 
quire much  more  than  the  familiar  process  of  distinguishing  precedents. 
All  that  is  vague,  shifting  or  contradictory  in  the  present  doctrines 
will  facilitate  their  modification  or  abandonment,  if  necessary,  so  that 
there  will  be  no  difficulty  in  accommodating  the  substantive  content 
of  constitutional  rights  to  altered  social  or  economic  conceptions. 

And  it  is  quite  possible  that  after  another  quarter  of  a  century  the 
limitations  which  our  courts  treat  to-day  as  fixed  and  essential  require- 
ments of  American  institutions,  will  appear  to  have  been  an  interesting, 
perhaps  an  inevitable,  but  after  all  a  merely  passing  phase  of  our 
constitutional  development. 


THE  LEGAL  MINIMUM  WAGE  IN  THE  UNITED  STATES 

By  a.  N.  Holcombe  of  Harvard  University 

(From  the  American  Economic  Review,  March,  1912) 

Several  recent  events  have  revived  the  interest  of  American 
economists  in  proposals  for  the  public  regulation  of  wages  in  private 
employments.     Two  years  ago  the  parliament  of  Great  Britain  passed 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   431 

the  Trade  Boards  act  to  provide  for  certain  British  industries  a  pro- 
cedure for  the  regulation  of  wages,  modeled  upon  that  of  the  minimum 
wage  boards  originally  estabhshed  in  the  Australian  state  of  Victoria 
by  the  Factory  and  Shops  act  of  1896.  In  the  present  year  bills  to 
provide  for  the  fixing  of  minimum  wages  in  underpaid  employments  by 
authority  of  law  were  introduced  into  the  legislatures  of  two  American 
states,  Minnesota  and  Wisconsin,  and  in  a  third,  Massachusetts,  a 
commission  was  appointed  to  investigate  the  wages  of  women  and 
minors  employed  within  the  state  and  report  to  the  next  legislature 
upon  the  advisability  of  the  establishment  of  minimum  wage  boards.^ 
Recently,  proposals  have  also  been  brought  forward  for  the  estabUsh- 
ment  by  federal  legislation  of  a  standard  minimum  wage  for  alien  im- 
migrants. 

Underlying  this  various  legislation,  actual  and  proposed,  are  various 
different  purposes.  The  Victorian  legislation,  unlike  the  contem- 
porary New  Zealand  and  subsequent  Australian  legislation  with  ref- 
erence to  so-called  compulsory  arbitration,  seems  to  have  owed  its 
origin  primarily  to  the  desire  to  abolish  sweating,  that  is,  certain  un- 
desirable conditions  of  employment,  such  as  excessively  long  hours 
and  excessively  low  rates  of  wages.  There  was  a  further  purpose  to 
protect  the  white  Australian's  standard  of  living  from  the  insidious 
competition  of  colored  races,  particularly  of  the  Chinese.  Victorian 
minimum  wage  boards  consist  of  from  four  to  ten  members,  half 
selected  by  or  on  behalf  of  the  employers,  half  by  or  on  behalf  of  the 
employees,  and  an  impartial  chairman.  The  boards  are  established 
for  such  trades  as  the  state  legislature  may  direct,  a  special  board 
being  established  for  each  trade,  and  are  authorized  to  fix  the  lowest 
rates  of  wages  that  may  be  lawfully  paid  in  their  respective  trades. 
There  is  no  attempt  at  a  statutory  definition  of  a  standard  living  wage 
for  all  Victorian  wage-earners.  Indeed  the  amending  act  of  1903 
contained  a  clause  expressly  providing  that  the  determinations  of 
wage  boards  should  be  based  on  the  "average  prices  or  rates  of  pay- 
ment paid  by  reputable  employers  to  employees  of  average  capacity." 
Although  "reputable"  was  generally  interpreted  as  "best,"  yet  it  was 
generally  felt  that  the  provision  seriously  hampered  the  boards,  and  in 
1907  it  was  stricken  out,  giving  them  complete  discretion  in  the  fixing 
of  a  minimum  wage.  The  Victorian  wage  boards  are  not  restricted 
in  their  activity  to  the  fixing  of  minimum  wages  for  work-people 
receiving  less  than  a  standard  living  wage.  They  may,  with  equal 
propriety,  fix  the  lowest  lawful  rates  of  payment  for  skilled  and  other 
highly  paid  grades  of  labor,  and  for  the  unskilled  and  oppressed; 
and  wage  boards  may  even  be  established  for  industries  in  which  no 
wage-earners  are  employed  at  or  below  the  living  wage  level. 

'Written  in  igii.  The  Massachusetts  commission  has  since  reported  (January,  igi2) 
in  favor  of  legislation  for  the  fixing  of  minimum  wages  for  women  and  minors. 


432       LABOR  LAWS  AND   THE  LABOR   CONTRACT 

In  1903  a  court  of  industrial  appeals  was  established,  consisting  of 
one  judge  of  the  supreme  court  of  the  state,  for  the  purpose  of  hearing 
appeals  from  determinations  of  the  wage  boards.  The  appeal  may 
be  taken  by  the  employers  or  employees  in  a  trade,  or  by  the  govern- 
ment, but  no  appeal  has  the  eiTect  of  suspending  or  delaying  the  opera- 
tion of  the  determination.  In  hearing  and  deciding  such  appeals, 
the  court  of  industrial  appeals  possesses  all  the  powers  of  the  state 
supreme  court,  and  "shall  in  every  case  be  guided  by  the  real  justice 
of  the  matter  without  regard  to  legal  forms."  ^  The  court  of  industrial 
appeals  is  further  instructed  to  consider  whether  a  determination 
brought  before  it  has  had  or  may  have  the  effect  of  prejudicing  the 
progress  of  a  trade  or  the  maintenance  or  scope  of  employment  therein, 
"and  if  of  opinion  that  it  has  had  or  may  have  such  effect  the  court 
shall  make  such  alterations  as  in  its  opinion  may  be  necessary  to  re- 
move or  prevent  such  effect  and  at  the  same  time  to  secure  a  living  to 
the  employees."  ^  The  law  takes  no  notice  of  the  possibility  that  there 
may  be  trades  in  which  the  maintenance  of  the  trade  in  the  face  of 
uncontrollable  competition  and  the  payment  of  a  living  wage  to  the 
employees  may  be  incompatible. 

In  practice  there  have  been  few  appeals  to  the  court.  The  boards 
have  taken  their  cue  from  the  language  of  the  statute,  and  instead  of 
attempting  to  determine  the  cost  of  the  standard  living  in  the  state 
they  have  attempted  rather  to  bring  together  employers  and  wage- 
earners  in  the  several  industries  for  which  they  have  been  established 
for  the  adoption  of  common  rules  for  the  trade,  including  among  the  rest 
mutually  acceptable  rates  of  wages.  Thus  their  chief  concern  is  to 
ascertain  and  publish  the  normal  "going"  wages  for  the  various  grades 
of  labor  in  the  several  industries,  and  to  provide  suitable  machinery 
for  the  readjustment  of  wages  and  conditions  of  employment  generally 
to  changing  economic  conditions.  In  this  they  have  been  successful. 
The  number  of  special  boards  has  been  continually  increased  until  there 
are  now  nearly  a  hundred  in  commission,  regulating  wages  and  hours 
of  labor  for  nearly  all  the  wage-earners,  both  men  and  women,  of  the 
state.  For  ten  years  there  was  no  strike  of  any  importance  in  a 
trade  under  a  special  board.  In  1907  a  strike  took  place,  when  the 
bakers'  union  ordered  the  journeymen  out,  not  against  a  determination 
of  a  wage  board,  however,  but  against  a  decision  of  the  court  of  in- 
dustrial appeals,  annulling  an  increase  of  wages  determined  by  the 
board.  It  was  quickly  ended  in  a  victory  for  the  strikers.  Whatever 
may  have  been  the  original  purpose  of  the  Victorian  wage  boards,  their 
chief  function  to-day  is  to  establish  a  more  solid  foundation  for  in- 
dustrial peace.  The  protection  of  the  standard  of  living  is  merely 
incidental  thereto.     This  function  has  become  so  well  recognized  in 

1  Factories  and  Shops  Act,  1907,  No.  2137. 

2  Factories  and  Shops  Act,  1905,  No.  1905. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   433 

Australia,  that  upon  the  temporary  collapse  of  the  system  of  compul- 
sory arbitration  in  New  South  Wales  in  1908,  an  attempt  was  made  by 
the  government  then  in  office  to  introduce  the  Victorian  system  in  its 
stead.  The  Labor  party  vigorously  opposed  this  attempt,  ultimately 
with  apparent  success.  In  short,  the  Victorian  wage  boards  serve 
to-day  primarily  to  foster  collective  bargaining  between  capital  and 
labor  with  a  view  to  the  peaceful  conciliation  of  industrial  disputes. 

The  Victorian  wage  boards  are  trade  boards,  and  as  such  have 
certain  advantages  over  a  district  board  as  a  mode  of  industrial  con- 
ciliation. They  bring  together  more  effectually  than  district  boards 
do,  the  employers  and  employees  concerned  in  a  particular  dispute, 
and  they  are  more  competent  to  deal  with  a  complicated  industrial 
wage-scale  than  is  a  board  partly  composed  of  representatives  of 
other  trades.  Their  organization  by  law  renders  them  available  for 
grades  of  workpeople  who  are  incapable  of  organizing  effectually 
for  themselves.  Their  official  character  gives  their  determinations 
a  force  beyond  that  ordinarily  attained  by  the  determinations  of 
voluntary  boards.  But  they  add  no  peculiar  sanctity  to  the  results 
of  collective  bargaining.  Strikes  in  trades  for  which  determina- 
tions have  been  lawfully  made  are  not  criminal  acts,  and  there  is  no 
effectual  remedy  for  the  aggrieved  party.  Since  1908,  however,  the 
government  has  reserved  the  power  to  suspend  a  determination  in 
case  of  a  strike,  thus  enabling  the  employers  to  hire  strike-breakers 
in  the  cheapest  market.  Fortunately,  the  mere  process  of  getting 
together  the  representatives  of  employers  and  employees  in  a  trade 
seems  to  contain  within  itself  the  prerequisites  of  industrial  peace 
under  ordinary  circumstances.  A  proposal  to  establish  wage  boards 
upon  the  Victorian  model  in  the  United  States,  however,  must  be 
advocated  upon  different  grounds,  and  will  have  a  different  constitu- 
tional status  from  that  of  a  proposal  to  establish  wage  boards  for 
the  sole  purpose  of  fixing  a  minimum  standard-of-living  wage. 

The  British  legislation  of  1909  does  not  attempt  to  cope  with  the 
board  problem  of  industrial  warfare.  The  object  of  the  act  is  the 
abolition  of  sweating,  that  is,  the  reduction  of  abnormally  long  hours 
of  labor  and  the  raising  of  abnormally  low  rates  of  wages,  and  in  general, 
so  far  as  may  be  through  the  regulation  of  the  terms  of  employment, 
the  maintenance  of  normal  living  conditions  according  to  British  no- 
tions of  normal  living.  The  boards,  the  establishment  of  which  was 
made  mandatory  by  the  terms  of  the  act,  were  to  deal  with  the  trades 
in  which  sweating  was  supposed  to  be  most  intolerable,  or  most  sus- 
ceptible to  that  particular  mode  of  treatment.  It  is  of  interest  to  note 
how  far  the  British  trade  boards,  as  they  are  called,  are  a  true  copy 
and  how  far  they  have  departed  from  the  type  of  the  Victorian  original. 
In  size  they  are  larger.  Otherwise  they  are  constituted  after  the 
fashion  of  their  prototypes.     There  is  likewise  an  appeal,  the  reviewing 


434   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

body  being  the  Board  of  Trade.  The  trade  boards  themselves  have 
adopted  the  procedure  of  the  Victorian  boards.  Their  determinations 
are  the  results  of  bargaining,  not  of  inquiry  into  the  cost  of  living 
and  the  establishment  of  a  standard-of-living  wage,  irrespective  of 
trade  conditions  in  the  trades  to  which  the  determinations  are  to 
apply.  The  prescribed  minimum,  therefore,  varies  from  trade  to 
trade,  and  unequal  minimum  wages  are  prescribed  for  normal  adult 
workers  within  the  same  trade  employed  in  different  branches  thereof. 
This  system  of  regulating  wages  is  more  than  the  establishing  of  a 
minimum  standard-of-living  wage.  It  amounts  to  the  regulating  of 
wages  generally  in  the  trades  for  which  the  boards  have  been  estab- 
lished, and  hence,  though  its  scope  is  now  more  limited,  economically, 
and  from  the  American  standpoint,  constitutionally,  it  must  be  classed 
with  the  Victorian  system  of  wage  regulation. 

Hithero  Americans  generally  have  refused  to  consider  proposals 
for  the  regulation  of  rates  of  wages  in  private  employments  by  au- 
thority of  law.  It  has  been  assumed  that  no  such  proposals  could 
escape  conflict  with  the  fundamental  law.  To  be  sure,  if  any  scheme 
for  the  public  regulation  of  rates  of  wages  gave  promise  of  being  de- 
sirable upon  economic  grounds  under  conditions  known  to  exist  in  any 
American  state  —  the  fact  of  its  assumed  or  even  demonstrated  uncon- 
stitutionality would  not  be  a  bar  to  its  discussion  by  economists. 
Nevertheless,  the  path  of  any  proposal  for  novel  legislation  is  made 
smoother  by  the  dissipation  of  doubts  concerning  its  constitutional 
status,  even  if  those  doubts  be  resolved  in  an  unfavorable  sense. 
Hence,  before  considering  the  economic  validity  of  the  several  schemes 
for  fixing  legal  minimum  wages,  the  question  of  their  constitutionality 
should  first  be  examined. 

The  doctrine  of  the  judicial  review  of  the  exercise  of  legislative 
authority  owes  its  present  importance  in  the  United  States  to  two 
circumstances.  One  is  the  interpretation  placed  upon  a  certain  clause 
of  the  fourteenth  amendment  to  the  federal  constitution  by  the  federal 
supreme  court.  The  other  is  the  manning  of  our  courts  with  a  set 
of  judges  whose  economic  training  was  received  mainly  from  the  so- 
called  classical  school  of  political  economists.  Since  iS68  no  person 
may  be  deprived  of  life,  liberty  or  property,  without  due  process  of 
law,  as  interpreted  by  the  federal  courts.  There  has  been  much  con- 
troversy over  the  meaning  of  the  terms  "deprived  of  liberty"  and 
"property,"  and  this  controversy  directly  concerns  the  status  of  the 
proposal  to  regulate  wages  in  private  employments  by  law.  Is  constitu- 
tional liberty  simply  freedom  from  physical  restraint,  or  does  the  term 
mean  freedom  from  control  in  any  manner  except  in  so  far  as  may  be 
necessary  to  assure  a  like  freedom  to  others  ?  If  the  former,  a  statute 
regulating  wages  in  private  employments  will  not  work  a  deprivation 
of  liberty,  since  it  carries  with  it  no  restraint  of  the  body,  but  merely 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   435 

of  the  legal  capacity  to  enter  into  a  contract.  If  the  latter,  such  a 
statute  will  work  a  deprivation  of  liberty,  since  it  will  restrict  the 
freedom  of  the  individual  employer  to  buy  labor  in  the  cheapest  market, 
and  of  the  individual  wage-earner  to  sell  his  labor  for  what  it  will  fetch. 
Again,  is  constitutional  property  simply  things  of  value  the  possession 
of  which  is  recognized  by  law,  or  does  the  term  include  also  things  of 
value  which  may  be  acquired,  provided  the  individual's  legal  privileges 
at  the  moment  are  preserved  unaltered.  If  the  former,  a  statute  regu- 
lating wages  will  not  work  a  deprivation  of  property  since  it  will  not  of 
itself  diminish  the  quantity  of  a  person's  possessions.  If  the  latter, 
such  a  statute,  by  imposing  a  new  limitation  upon  the  privilege  of 
making  lawful  contracts,  may  deprive  a  person  of  an  opportunity  to 
enter  into  a  supposedly  advantageous  agreement  to  buy  or  sell  labor. 
The  federal  supreme  court  has  interpreted  the  fundamental  law  in 
each  of  the  pair  of  alternatives  in  the  latter  sense.  The  effect  of  such 
judicial  interpretation  has  been  to  read  into  the  constitution  a  doctrine 
that  is  nowhere  expressed  therein,  namely,  a  doctrine  of  freedom  of 
contract. 

In  most  of  our  states,  however,  this  constitutional  freedom  of  con- 
tract is  for  men  only.  Women  and  children  are  regarded  as  under  the 
tutelage  of  the  state,  and  the  law  may  impose  such  restrictions  upon 
their  privilege  of  entering  into  contracts  as  may  be  deemed  necessary 
and  proper.  A  law  fixing  the  rates  of  wages  in  private  employments 
for  women  and  minors  is  not  open  in  such  states  to  the  constitutional 
objection  that  might  lie  against  such  a  law  for  men.  Partly  in  recog- 
nition of  this  circumstance  and  partly  on  account  of  the  supposed 
greater  need  of  protection  against  industrial  exploitation  for  women 
and  minors,  the  advocates  of  minimum  wage  legislation  in  the  United 
States  upon  the  Victorian  and  British  models  have  lately  directed 
their  efforts  to  securing  legislation  which  shall  apply  only  to  women  and 
minors.  Thus  the  Minnesota  bill  of  the  present  year  was  frankly 
founded  upon  the  Victorian  and  British  models,  but  was  designed  to 
put  an  end  to  the  evils  of  sweating,  so  far  only  as  women  and  minors 
might  be  concerned.  The  scope  of  the  investigation  to  be  made  by 
the  Massachusetts  commission  is  also  limited  to  wage-earning  women 
and  minors.  In  several  of  the  states,  on  the  other  hand,  including 
states  like  Illinois,  in  which  the  evils  of  sweating  are  most  apparent, 
women  enjoy  the  same  constitutional  rights  and  privileges  as  men, 
and  such  bills  as  that  introduced  into  the  Minnesota  legislature  would 
have  no  better  prospect  of  withstanding  the  scrutiny  of  the  courts 
than  a  similar  bill  for  all  adults,  male  and  female  alike.  Nor  is  it  ■ 
clear  upon  economic  grounds  that  the  underpayment  of  women  is  a 
more  serious  menace  to  society  than  the  underpayment  of  men,  upon 
whom  as  the  heads  of  families,  the  majority  of  women  are  dependent 
for  support.     The  minimum  standard-of-living  wage,  if  it  be  sound  in 


436   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

principle,  would  appear  to  apply  with  most  propriety  to  men  in  their 
capacity  of  heads  of  families.  Women,  in  their  capacity  of  joint  heads 
of  families,  would  be  entitled  to  their  proper  share  in  the  family 
income.  The  single  woman,  following  a  trade,  would  not  be  entitled 
to  more,  unless  it  should  appear  that  the  supply  of  marriageable 
women  could  not  be  maintained  without  the  payment  of  more.  The 
justification  of  the  minimum  standard-of-living  wage  must  be  found, 
if  at  all,  in  the  social  necessity  for  the  maintenance  of  the  family. 
If,  in  the  application  of  the  principle,  the  evidence  should  show  that, 
as  a  matter  of  fact,  women  were  oppressed  to  a  greater  degree  than 
men  by  employment  in  sweated  trades,  that  would  be  a  matter  with 
which  the  enforcing  authority  would  properly  deal. 

Now  a  statute  regulating  the  wages  of  men  in  private  employments 
undoubtedly  places  a  restriction  upon  the  freedom  of  contract.  This 
circumstance  alone,  however,  does  not  render  such  a  statute  uncon- 
stitutional. There  is  no  constitutional  objection  to  the  limitation  of 
the  freedom  of  contract,  provided  that  the  limitation  is  not  accom- 
plished without  due  process  of  law.  If  the  established  requirements 
of  legal  procedure  are  properly  complied  with,  there  would  appear  to 
be  no  sufficient  cause  for  a  refusal  on  the  part  of  the  federal  courts  to 
enforce  a  statute  regulating  wages  in  private  employments.  The 
constitutionality  of  such  legislation  depends,  therefore,  upon  the 
possession  by  some  legislative  body  of  authority  to  accomplish  its 
enactment.  Such  authority  may  be  found  in  the  ordinary  police 
power  of  the  state  to  provide  for  the  common  defense  and  general 
welfare  of  its  citizens.  This  power  is  restricted  only  by  expressed 
limitations  in  the  state  constitutions,  by  the  delegation  of  certain 
powers  to  the  federal  government,  and  by  the  requirement  that  the 
legislature  in  its  exercise  of  the  police  power  shall  be  guided  by  reason. 
The  only  state  constitution  to  contain  a  prohibition  against  the  legal 
regulation  of  wages  in  private  employments  is  that  of  Louisiana.  The 
power  to  legislate  with  regard  to  interstate  and  foreign  commerce 
is  vested  exclusively  in  the  United  States,  w'hich  may  prevent  the 
application  of  state  minimum  wage  laws  to  persons  engaged  in  inter- 
state commerce.  In  all  other  fields  of  labor,  reasonable  restrictions 
upon  the  freedom  of  contract  may  be  imposed  by  state  legislation  for 
the  purpose  of  protecting  the  public  against  the  evil  results  of  accidents, 
disease,  bad  habits  (such  as,  for  example,  the  abuse  of  intoxicating 
liquor),  overwork,  under-payment,  and  all  other  things  whatsoever 
that  may  be  deemed  inimical  to  the  well-being  of  society.  The  United 
States  may  do  the  same  in  the  field  delegated  to  it.  What  is  or  is  not, 
under  given  circumstances,  a  reasonable  -restriction  is  in  the  first  in- 
stance to  be  determined  by  a  legislative  body,  subject  to  subsequent 
review  by  the  judiciary,  whenever  cases  of  alleged  unreasonable  use 
of  the  police  power  are  properly  brought  before  them.     The  prevalent 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   437 

uncertainty  concerning  the  constitutionality  of  the  legal  regulation 
of  wages  in  private  employments  arises,  not  from  the  boldness  and 
vigor  with  which  our  courts  have  become  accustomed  to  use  their  power 
of  reviewing  the  reasonableness  of  legislation  under  the  police  power, 
but  from  their  general  acceptance  of  an  economic  theory  now  being 
discarded  by  the  mass  of  the  people. 

The  phrase,  freedom  of  contract,  is  new  in  American  legal  terminol- 
ogy. Francis  Lieber  in  his  "Civil  Liberty  and  Self-Government" 
(1S25)  makes  no  mention  of  it.  It  is  first  found  in  a  reported  decision 
of  a  Pennsylvania  court  handed  down  in  the  year  1886.  The  idea 
which  is  embodied  in  the  phrase  is  not  much  older.  In  substance  our 
courts  have  read  into  the  federal  constitution  not  simply  a  phrase,  but  a 
whole  theory  of  government.  As  Mr.  Justice  Holmes  tersely  remarked 
in  his  dissenting  opinion  in  the  New  York  Bakers'  Ten  Hours  case, 
the  majority  of  the  court  had  read  into  the  fourteenth  amendment 
the  Social  Statics  of  Herbert  Spencer.  The  effect  is  that  our  funda- 
mental law  now  not  only  guarantees  to  the  states  a  republican  form 
of  government,  but  also  guarantees  the  conduct  of  state  affairs 
according  to  the  principles  of  laissez  faire. 

The  phrase  "due  process  of  law"  is  a  part  of  the  American  heritage 
from  the  English  constitution.  It  was  first  inserted  in  the  federal 
constitution  in  1790  as  a  part  of  the  fifth  amendment,  and  had  then  the 
same  meaning  that  it  had  in  England  at  that  time.  Yet  in  England 
at  that  time  and  for  more  than  a  score  of  years  afterward,  wages  in 
private  employments  were  fixed  by  public  authority  under  the  Eliza- 
bethan statute  of  artificers,  and  no  one  complained  that  it  was  done 
without  due  process  of  law.  To  the  layman  there  is  no  convincing 
evidence  that  the  "fathers"  intended  to  establish  the  rule  of  laissez 
faire  by  the  fifth  amendment  to  the  federal  constitution.  Nor  is  there 
any  convincing  evidence  that  when  the  same  phrase  was  embodied 
in  the  fourteenth  amendment  seventy-eight  years  later,  anything 
more  was  intended  by  the  people  of  the  United  States  than  to  enable  the 
federal  courts  to  protect  the  freedmen  in  the  enjoyment  of  the  same 
personal  and  property  rights  as  white  men.  The  construction  of  the 
fourteenth  amendment  that  threatens  the  capacity  of  the  state  legisla- 
tures to  regulate  wages  in  private  employments,  if  they  deem  it  neces- 
sary and  proper  for  the  protection  of  the  public,  is  not  the  work  of  the 
American  people  in  1S68,  but  of  the  courts  in  subsequent  years.  Like 
all  acts  of  government,  constituting  government  by  men  and  not  by 
law,  this  novel  interpretation  of  the  fundamental  law  can  be  undone  by 
a  change  in  the  men  who  interpret  it.  The  principles  of  laissez  faire, 
having  been  read  into  the  constitution,  can  be  read  out  again. 

The  assumption  that  no  such  proposal  as  that  to  regulate  wages 
in  private  employments  can  be  enforced  through  the  courts  is  prema- 
ture.    It  is  first  indispensable,  however,  that  the  American  people 


438   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

should  be  convinced  that  some  action  for  the  protection  of  the  Ameri- 
can standard  of  living  is  necessary,  and  that  the  proposed  remedy  is 
appropriate.  Whereas  the  Illinois  court  of  last  resort  once  refused  to 
enforce  a  law  regulating  the  hours  of  labor  of  women,  and  then,  in 
the  light  of  further  reflection  and  a  more  thorough  acquaintance  with 
the  actual  conditions  of  employment  in  the  state  (in  the  second  Ritchie 
case)  reversed  its  earlier  decision,  so  social  reformers  who  can  prove 
their  case  for  the  minimum  wage  may  expect  equally  favorable  con- 
sideration from  the  courts.  There  is  no  essential  difference,  so  far  as 
constitutional  status  is  concerned,  between  the  legal  regulation  of  the 
hours  of  labor,  and  the  legal  regulation  of  wages.  The  constitution- 
ality of  both  alike  is  solely  a  matter  of  producing  sufficient  evidence 
showing  the  necessity  and  appropriateness  of  the  proposed  legislation. 
Socialism  itself  would  be  constitutional,  if  a  social  revolution  could 
be  shown  to  be  necessary,  and  if  that  particular  kind  of  a  social 
revolution  could  be  shown  to  be  appropriate  to  the  occasion.  Our 
constitutional  system  is  susceptible  of  adaptation  to  any  social  condi- 
tion. The  constitutionality  of  plans  for  the  legal  regulation  of  wages 
depends,  then,  upon  the  necessities  of  the  case  to  which  they  are  to 
be  applied,  and  the  appropriateness  of  the  particular  plans  presented. 
There  is  one  further  consideration.  A  legislative  body  may  not 
delegate  legislative  power  to  another  branch  of  government.  A 
minimum  w^age  board,  constitutionally  regarded,  is  an  administrative 
body,  and  may  not  be  entrusted  with  legislative  power.  In  the 
United  States,  therefore,  the  legislature  may  not  delegate  the  whole 
function  of  regulating  wages  to  a  set  of  special  boards.  The  legislature 
itself  must  define  the  principles  of  just  and  reasonable  wages,  which 
the  boards  are  to  administer  for  their  respective  trades  and  localities. 
Now  it  is  certain  that  no  legislative  body  in  the  United  States  to-day 
is  prepared  to  define  the  principles  of  just  and  reasonable  wages.  It 
is,  therefore,  beyond  the  power  of  an  American  legislature  to  enact  a 
constitutional  system  of  wage  boards  upon  the  Victorian  and  British 
models.  There  are  two  alternatives.  The  legislatures  may  declare 
all  private  employments  to  be  affected  with  a  public  interest  to  the 
extent  that  just  and  reasonable  rates  of  wages  shall  be  paid  to  all  wage- 
earners.  This  would  place  upon  the  courts  in  the  last  analysis  the 
responsibiUty  for  the  definition  of  justice  and  reasonableness  with 
respect  to  the  rates  of  wages,  as  is  the  case  to-day  wath 
respect  to  the  rates  of  railways  and  other  public  utilities.  Such  a 
system  of  public  regulation  of  wages  would  be  substantially  the  same  as 
the  New  Zealand  and  Australian  system  of  compulsory  arbitration, 
and  would  require  for  its  constitutional  justification  a  wholly  different 
array  of  evidence  from  that  required  for  the  justification  of  a  minimum 
standard-of-hving  wage.  The  former  would  require  evidence  showing 
the  public  need  for  protection  against  the  evil  results  of  unrestrained 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   439 

industrial  warfare;  the  latter  would  require  e\'idence  showing  the 
public  need  for  protection  against  the  evil  results  of  unrestrained 
imderpayment  of  workpeople. 

The  other  alternative  is  not  to  attempt  to  define  the  principles  of 
just  and  reasonable  wages  generally,  but  to  define  the  principle  of  a 
minimum  standard-of-living  wage  only.  The  bill  introduced  into 
the  legislature  of  Wisconsin  was  founded  upon  a  correct  analysis  of  the 
pecuhar  American  constitutional  situation.  This  bill  assumed  the 
existence  of  sufficient  evidence  showing  the  necessity  of  protecting  the 
public  against  the  evil  results  of  employment  at  less  than  standard-of- 
living  wages,  and  defined  the  minimum  wage  as  such  compensa- 
tion for  labor  performed  under  reasonable  conditions  as  should  enable 
employees  to  secure  for  themselves  and  those  who  are,  or  may  be, 
reasonably  dependent  upon  them,  the  necessary  comforts  of  life.  The 
term  "  necessary  comforts  of  life  "  is  not  defined  in  the  bill.  The  same 
term,  however,  is  employed  in  the  constitutions  of  seven  states,  In- 
diana, Minnesota,  Alontana,  Nevada,  North  and  South  Dakota  and 
Wisconsin,  in  connection  with  the  grant  to  their  respective  legislatures 
of  the  power  to  enact  debtors'  exemption  laws,  and  has  consequently 
been  authoritatively  defined  by  the  courts  themselves.  "The  privi- 
lege of  the  debtor  to  enjoy  the  necessary  comforts  of  Hfe  shall  be  recog- 
nized by  wholesome  laws  exempting  a  reasonable  amount  of  property." 
This  same  privilege  of  enjoying  the  necessary  comforts  of  life  the  ad- 
vocates of  the  Wisconsin  minimum  wage  bill  proposed  to  extend  to 
all  adult  wage-earners  laboring  under  reasonable  conditions.  The 
bill  did  not  guarantee  employment  to  the  unemployable,  but  it  did 
guarantee  reasonable  conditions  of  employment  and  a  minimum 
standard-of-living  wage  to  all  who  are  employed.  This  guaranty  was 
ultimately  to  be  enforced  by  an  industrial  commission,  which,  under  a 
broad  grant  of  power  to  investigate,  hold  public  hearings,  ascertain 
and  classify  each  oppressive  employment,  and  fix  for  each  underpaid 
employee  the  standard-of-living  wage,  would  have  ample  power  to 
establish  minimum  wage  boards  of  the  British  type  for  the  provisional 
translation  of  the  standard-of-living  wage  into  wage  scales  suitable  to 
the  peculiar  conditions  in  the  various  sweated  industries  of  the  state. 
The  Wisconsin  industrial  commission,  like  the  British  Board  of  Trade, 
would  itself  have  to  assume  the  responsibility  for  the  final  determina- 
tions. Thus  the  Wisconsin  bill,  like  the  British  Trade  Boards  act, 
was  designed  to  protect  all  the  victims  of  sweating,  but  not  to  regulate 
wages  except  in  so  far  as  required  for  the  maintenance  of  the  standard 
of  living.^ 

'The  Massachusetts  bill  of  igi2  is  drafted  upon  similar  principles.  It  defines  under- 
payment, against  which  the  public  should  be  protected,  as  the  payment  of  wages  "inade- 
quate to  supply  the  necessary  cost  of  living  and  to  maintain  the  worker  in  health."  The 
bill  applies  to  women  and  minors  only,  and  provides  that  a  minimum  wage  commission 


440   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

It  is  now  in  order  to  examine  the  evidence  relied  upon  by  the  advo- 
cates of  the  legal  protection  of  the  standard  of  living  to  show  the  neces- 
sity for  action.  The  most  recent,  and  probably  the  most  satisfactory, 
attempt  to  determine  the  cost  of  maintaining  the  normal  American 
standard  of  living  is  that  of  Air.  Frank  H.  Streightoff.  He  places  the 
minimum  family  income  adequate  to  the  maintenance  of  normal  living 
conditions  in  the  smaller  cities  of  the  North,  according  to  the  generally 
prevailing  American  notions  of  decent  living,  at  S650  a  year.  Dr. 
Chapin  places  the  figure  at  SSoo  or  over  in  Ncav  York,  but  in  order  to 
avoid  the  appearance  of  exaggeration  let  us  take  the  figure  of  S600. 
The  most  recent  and  probably  the  best  evidence  concerning  the  num- 
ber of  households  receiving  less  than  this  minimum  family  income  is 
contained  in  the  reports  of  the  Immigration  Commission.  In  the 
ofiicial  abstract  of  the  report  on  immigrants  in  manufacturing  and 
mining  the  public  is  informed  that  the  average  annual  family  income  in 
sLxteen  leading  industries  in  which  a  large  number  of  t}'pical  house- 
holds, representing  all  nationalities,  native  and  foreign,  were  inten- 
sively studied,  is  S721.  The  report  does  not  indicate  what  percentage 
of  this  number  of  households  receive  an  annual  income  of  less  than 
S600,  but  it  is  stated  that  no  less  than  31.3  per  cent  receive  less  than 
S500,  and  7.6  per  cent  receive  less  than  S300.  The  annual  earnings  of 
male  heads  of  families  alone  are  lower.  iNIore  than  half  earn  less  than 
$500  a  year,  and  nearly  two-thirds  earn  less  than  S600  a  year.  If  we 
examine  the  official  abstract  of  the  report  on  immigrants  in  cities  we 
find  even  more  depressing  conditions.  Of  5825  families  dwelling  in 
t\'pical  congested  blocks  in  New  York,  Chicago,  Philadelphia,  Boston, 
Cleveland,  Builalo  and  Milwaukee,  the  male  heads  earned  on  an  aver- 
age only  S475.  ^o  Isss  than  72.2  per  cent  of  the  whole  number  earned 
less  than  S600  a  year,  and  41.2  per  cent  earned  less  than  S400.  The 
average  annual  earnings  of  the  3609  females  in  the  households  studied 
and  reported  in  the  abstract  on  immigrants  in  manufacturing  and 
mining  were  S304.  No  less  than  26.4  per  cent  of  them  earned  less 
than  S200  a  year.  The  average  annual  earnings  of  the  2595  females 
eighteen  years  of  age  or  over  working  for  wages  and  reported  in  the 
abstract  on  immigrants  in  cities  were  S239.  No  less  than  67.9  per 
cent  of  these  earned  under  S3cnd  a  year,  and  44.8  per  cent  earned  under 
S200  a  year.  With  these  latest  official  figures  in  mind  concerning  the 
extent  and  intensity  of  underpa\-ment,  we  are  prepared  to  accept  ]Mr. 
Streightoff's  estimate  that  at  least  five  million  adult  males  receive  less 
than  S600  a  year  for  their  labor.  Not  all  of  these  are  the  heads  of 
families,  but  on  the  other  hand,  there  must  be  many  thousands  of  single 
women  who  are  not  receiving  half  of  S600,  and  probably  are  quite  as 

shall  inquire  into  the  rates  of  wages  paid  to  such  employees  and  establish  wage  boards  in 
trades  in  which  wages  are  found  to  be  unduly  low.  Upon  the  recommendation  of  such  a 
board,  the  commission  may  then  fix  the  minimum  wage  in  the  trade. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   441 

unable  to  maintain  normal  American  liWng  conditions  as  the  head  of 
a  household  earning  under  S600.  Mr.  Streightoff  writes  in  no  con- 
troversial spirit,  but  he  does  not  conceal  his  belief  that  the  current 
wage  for  unskilled  labor  is  too  low  to  meet  the  requirements  of  a  decent 
standard.  He  tinds  abundant  evidence  of  families  deteriorating  physi- 
cally because  of  insufficient  income,  and  even  where  the  wage  suffices 
for  food,  clothing  and  shelter,  little  or  nothing  remains  to  meet  the 
wants  of  the  intellectual  and  spiritual  life.  In  the  light  of  these  and 
other  recent  investigations  into  the  standard  of  living  among  the 
industrial  population  of  the  United  States,  the  fact  that  a  very  con- 
siderable number  of  workpeople  are  now  employed  in  the  United 
States  at  less  than  an  American  standard-of-living  wage  may  be  re- 
garded as  sufficiently  established. 

The  final  consideration  with  respect  to  the  legal  protection  of  the 
American  standard  of  living  by  means  of  minimum  wage  legislation,  is 
its  appropriateness  to  the  existing  situation.  The  minimum  wage  in 
itself  is  not  unfamiliar.  It  is  a  standard  feature  of  trade-unionism, 
and  involves  no  new  principle.  It  restricts  somewhat  the  field  of 
competition,  but  does  not  disturb  the  foundations  of  the  competitive 
system.  The  select  committee  on  home  work  of  the  British  House  of 
Commons  reported  in  1908  :  "Your  committee  are  of  opinion  that  it  is 
quite  as  legitimate  to  establish  by  legislation  a  minimum  standard  of 
remuneration  as  it  is  to  establish  such  a  standard  of  sanitation,  cleanli- 
ness, ventilation,  air-space,  and  hours  of  work."  The  economic 
reasoning  underlying  proposals  to  establish  minimum  standards  of 
remuneration  and  conditions  of  employment  generally  is  familiar  to 
economists,  and  requires  no  further  elaboration  in  this  place.  The 
student  who  desires  to  pursue  further  the  economic  argument  in  favor 
of  the  minimum  standard  of  remuneration  in  particular  should  consult 
the  Webbs'  "  Industrial  Democracy,"  part  III,  chap,  iii.^ 

The  immediate  direct  effect  of  the  establishment  of  a  minimum 
standard-of-living  wage  would  be  to  put  an  end  to  the  employment  of 
normal  adult  workers  at  lower  rates.  Not  e^•ery  wage-earner  who  had 
been  employed  at  lower  rates  would  necessarily  be  deprived  of  employ- 
ment, nor  would  the  wage  of  every  such  wage-earner  neeessarilv  be 
increased  to  the  standard  minimum  rate.  Some  employees  would 
receive  the  increase  and  some  would  lose  their  employment.  The 
actual  effect  of  the  legal  establishment  of  the  minimum  would  depend 
in  particular  cases,  partly  upon  the  efficiency  of  the  particular  wage- 
earners  concerned,  and  partly  upon  the  character  of  the  demand  for 
their  services.  In  industries  like  department  stores  and  steam 
laundries,  which  serve  local  markets  and  are  free  from  outside  competi- 
tion, probably  the  increase  of  wages,  caused  by  the  establishment  of 

1  Sections  d,  e  and/;  pp.  749-788  of  1902  ed.  Cf.  F.  W.  Taussig.  Principles  of  Eco- 
nomics, chap.  Ivi,  Sect.  5;  chap.  Ivii,  Sects.  6,  7;  Vol.  II,  pp.  297-302,  316-322. 


442   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

a  standard  minimum,  could  be  paid  to  all  employees  below  the  mini- 
mum without  so  increasing  the  cost  of  production  as  to  produce  any 
material  decline  of  the  demand.  But  in  industries  serving  a  wider 
market  and  subject  to  outside  competition,  such  as  cotton  mills  and 
shoe  factories,  the  establishment  of  a  legal  minimum  wage  might  reduce 
employment  rather  than  increase  wages.  The  outcome  would  depend 
largely  vipon  the  extent  of  the  necessary  increase,  and  the  rapidity 
with  which  it  should  be  put  into  force.  Some  sweated  industries, 
parasitic  industries  as  the  Webbs  call  them,  might  be  altogether 
incapable  of  maintaining  themselves,  if  prevented  from  exploiting  un- 
protected labor  by  the  payment  of  abnormally  low  wages.  Such  indus- 
tries as  these,  the  country  is  better  without.  They  fall  in  the  same 
class  with  lotteries  and  other  noxious  enterprises,  and  the  community 
should  either  pay  for  their  products  a  price  sufificient  to  maintain  the 
normal  conditions  of  remuneration  and  employment,  or  supply  itself 
from  abroad. 

The  greatest  difficulty  arises  in  the  cases  where  workpeople  of  dis- 
tinctly different  standards  of  living  come  into  competition  with  one 
another  in  indvistries  to  which  the  legal  minimum  wage  is  to  be  applied. 
Unless  the  various  groups  of  workpeople  are  of  equal  efficiency,  the 
attempt  to  establish  a  single  standard  for  all  might  result  in  securing 
the  industry  to  the  most  efficient  group  and  excluding  the  others  from 
all  prospect  of  employment  therein.  Such  would  be  the  result,  for 
example,  in  the  Victorian  furniture  industry,  if  the  white  Australian 
standard  could  be  forced  upon  the  Chinese.  In  fact,  it  is  impossible 
to  enforce  the  determinations  of  the  furniture'  board  in  the  Chinese 
factories,  and  the  latter  hold  their  position  in  the  industry.  The  same 
conditions  might  be  found  to  exist  in  certain  industries  in  the  United 
States,  were  the  experiment  attempted  of  fixing  the  American 
standard-of-living  wage  as  a  minimum  for  all  groups  of  wage-earners. 
The  truth  is  that  there  is  no  single  American  standard  of  living  to-day. 
There  are  several  standards  of  living  among  the  industrial  population 
of  the  United  States,  and  in  consequence  a  tendency  towards  an  occu- 
pational division  of  labor  between  different  races.  The  Immigration 
Commission  reports  in  the  volume  first  cited  above,  that  59.6  per  cent 
of  the  negro  families  intensively  studied  received  under  $500  a  year, 
41.6  per  cent  of  the  foreign  born  received  under  $500  a  year, 
whereas  only  19  per  cent  of  the  native  born  of  foreign  father  (mostly 
of  races  from  the  Northwest  of  Europe  rather  than  from  the  Southeast, 
as  is  the  case  with  most  of  the  recent  immigrants),  and  15.7  per  cent 
of  the  native  born  of  native  white  father  received  under  $500  a  year. 
To  attempt  to  establish  the  principle  of  an  American  standard-of- 
living  wage  of  alien  races  of  distinctly  lower  standards  and  lower  effi- 
ciency, would  probably  result  in  the  exclusion  of  many  aliens  from 
employment  within  the  country.     It  would  also  result  in  the  exclusion 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   443 

of  most  of  the  negroes  from  the  occupations  in  which  the  wage  should 
be  adjusted  to  the  efficiency  of  the  native  whites. 

Yet  one  of  the  most  striking  facts  indicated  by  a  comparison  of  the 
earnings  of  the  races  in  different  industries  is  that  within  certain 
limits  earning  capacity  is  more  the  outcome  of  industrial  opportunity 
than  of  racial  efficiency.  This  fact  becomes  evident  when  the  average 
weekly  earnings  of  the  members  of  a  single  race  in  the  cotton  or 
woolen  and  worsted  goods  industries,  as  reported  in  the  official  abstract 
of  the  Immigration  Commission's  report  on  immigrants  in  manufactures 
and  mining,  are  compared  with  the  earnings  of  the  same  race  in  other 
industries.  The  Lithuanians,  for  example,  earn  an  average  of  $12.24 
weekly  in  the  manufacture  of  agricultural  implements  and  vehicles, 
$11.60  in  clothing,  $13.60  in  copper  mining  and  smelting,  $9.87  in  fur- 
niture, $12.89  ^  i^oi^  ^■^d  steel,  $11.98  in  iron-ore  mining,  $9.50  in 
leather,  $12.85  '^^  oil  refining,  $10.87  in  shoes,  $10.67  ^^  sugar  refining, 
but  only  $7.86  in  cotton  and  $7.97  in  woolen  and  worsted  goods  manu- 
facturing. A  legal  minimum  wage  would  apparently  be  of  advantage 
in  promoting  a  better  distribution  of  such  immigrants  among  our 
various  industries. 

The  indirect  economic  effects  of  the  establishment  of  a  minimum 
standard-of-living  wage  may  be  mentioned  summarily.  First,  the 
establishment  by  legislation  of  a  minimum  standard-of-living  wage 
would  make  available  to  the  poorest  and  most  helpless  of  the  laboring 
population  a  share  in  the  advantages  obtained  by  the  better-to-do  and 
stronger  through  voluntary  association.  Well-conducted,  powerful 
labor  unions  do  more  for  their  members  than  merely  to  establish  a 
minimum  wage  and  maximum  hours  of  employment,  but  the  weak 
and  poverty-stricken  unions  of  the  sweated  workers  are  scarcely  better 
than  none  at  all.  The  advantage  of  the  establishment  of  a  minimum 
wage  and  standard  conditions  of  employment  generally  by  law  instead 
of  lea\dng  it  to  the  action  of  private  trade  associations  is  the  greater 
security  for  the  protection  of  the  interests  of  the  public  against  the 
abuse  of  irresponsible  power  in  the  interests  of  special  classes.  Sec- 
ondly, the  line  would  be  drawn  more  sharply  between  the  unem- 
ployable and  the  merely  unemployed.  The  unemployable  are  always 
with  us,  and  must  be  provided  for  by  some  means  in  any  event. 
The  establishment  of  a  minimum  standard-of-living  wage  would  define 
more  accurately  the  limits  of  that  unfortunate  class,  and  thus  facilitate 
the  task  of  giving  its  members  treatment  suitable  to  their  condition. 
Although  the  number  of  the  unemployable  might  be  greater  than  that 
of  the  destitute  under  present  conditions,  the  isolation  of  one  more  of 
the  causes  of  destitution  would  be  a  gain  to  the  cause  of  scientific  poor 
relief.  It  would  also  tend  to  restrict  the  influx  of  the  unemployable 
from  abroad,  thus  at  once  checking  the  increase  of  inferior  labor 
and  raising  the  average  efficiency  of  the  domestic  supply.     Thirdly, 


444   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

there  would  result  a  restriction  of  the  field  of  competition  between 
workpeople.  The  wage-earner  whose  chief  recommendation  is  willing- 
ness to  work  for  a  pittance  would  lose  the  advantage  of  his  submissive- 
ness,  and  strength  and  skill  would  become  of  greater  importance  in  the 
obtaining  of  employment.  Fourthly,  there  would  result  a  restriction 
of  the  field  of  competition  between  employers.  The  employer  whose 
chief  stock  in  trade  is  his  shrewdness  in  driving  hard  bargains  with  his 
employees  would  lose  the  advantage  of  that  pernicious  superiority. 
The  peculiar  qualities  of  the  best  type  of  business  man,  imagination, 
judgment  and  courage  in  undertaking  legitimate  business  risks,  and 
sagacity  in  the  management  of  his  establishment,  would  become  of 
greater  importance  in  the  achievement  of  success,  especially  in  the 
sweated  industries.  In  short,  the  indirect  economic  effect  of  the 
establishment  of  a  minimum  standard-of- living  wage  would  be  to  pro- 
mote the  concentration  of  competition  between  workpeople  and  be- 
tween employers  upon  efficiency. 

The  ultimate  consequences  of  a  legal  minimum  wage  are  not  so 
certain.  The  legal  protection  of  the  standard  of  living  cannot  directly 
bring  about  a  rise  in  the  general  level  of  wages.  In  the  first  instance, 
it  can  affect  only  the  wage-earners  who  are  earning  less  than  the  mini- 
mum. To  such  as  these  it  offers  the  hope  of  employment  at  the  stand- 
ard-of-living  wage.  It  cannot  guarantee  such  employment.  In  the 
long  run  wages  must  depend  upon  efficiency.  Temporarily,  by  the 
establishment  of  a  legal  minimum  workpeople  may  be  able  to  secure 
a  higher  wage  than  they  are  worth.  In  the  long  run,  however,  unless 
they  increase  their  output  to  correspond  to  their  increased  income, 
they  will  not  be  worth  to  the  community  what  the  community  is  under- 
taking to  pay  them.  The  state  which  assumes  the  responsibility  for 
establishment  of  a  minimum  wage  must  also  assume  the  responsibility 
for  the  establishment  of  a  minimum  standard  of  efficiency. 

Minimum  wage  legislation  and  industrial  education  must  go  hand 
in  hand  together.  In  such  a  country  as  the  United  States  it  may  also 
be  necessary  to  restrict  the  supply  of  labor  of  the  lower  grades.  The 
establishment  of  a  legal  minimum  wage  would  of  itself  tend  somewhat 
to  obstruct  the  influx  of  laborers  of  low  efficiency ;  but  the  otherwise 
unrestricted  influx  of  laborers  of  low  efficienc)^  would  also  tend  to  ob- 
struct the  maintenance  of  a  minimum  wage  at  the  native  standard-of- 
living  level.  Probably  some  further  means  of  restricting  immigration 
would  be  necessary.  It  must  not  be  forgotten,  too,  that  a  minimum 
wage  law  cannot  cure  the  evils  that  arise  from  the  foolish  spending  of 
incomes,  small  or  great.  Some  immediate  protection,  however,  for 
the  American  standard  of  li\dng  is  necessary,  and  an  appropriate 
means  is  the  establishment  by  legislation  of  a  minimum  wage. 


LABOR  LAWS  AND   THE  LABOR  CONTRACT      445 

EMPLOYERS'   LIABILITY   AND    WORKMEN'S 
COMPENSATION  LAWS 

By  J.  Walter  Lord,  of  the  Baltimore  Bar 

(From  an  Address  delivered  at  the  Seventeenth  Annual  Meeting  of  the 
Maryland  State  Bar  Association,  July,  191 2) 

The  subject  which  I  shall  undertake  to  discuss  in  the  following  paper 
is  one  that  has  received  elaborate  consideration  in  this  country,  par- 
ticularly within  the  past  three  years.  The  paper,  therefore,  does  not 
reflect  any  original  thought  on  the  part  of  the  writer,  but  is  rather  an 
attempt  to  compress,  within  unobjectionable  limits,  the  conditions 
out  of  which  the  movement  toward  the  enactment  of  workmen's 
compensation  acts  in  this  covmtry  has  developed,  and  the  constitu- 
tional and  economic  questions  related  to  that  problem.  My  justifica- 
tion for  selecting  this  subject  is  not  so  much  that  these  questions  are 
academically  novel  and  interesting,  as  that  the  subject  is  itself  a  timely 
one,  and  that  we  may  feel  reasonably  assured  that  the  "law  of  negli- 
gence," in  cases  of  occupational  injuries,  will  very  soon  be  superseded 
generally  in  this  country,  as,  indeed,  it  has  been  almost  everywhere 
else,  by  the  "law  of  compensation." 

It  is  a  somewhat  interesting  coincidence  that  contemporaneously 
with  the  decision  of  the  English  Court  of  Exchequer  in  Priestly  vs. 
Fowler  (3  M.  &  W.  i,  decided  in  1837)  —  the  case  which  is  considered 
as  the  genesis  of  the  doctrines  of  fellow-servant  and  assumption  of  risks 
—  the  Kingdom  of  Prussia  took  the  initial  step  in  the  recognition  of 
the  principle  that  the  employer  should  be  held  to  an  absolute  liability 
in  the  case  of  occupational  injuries.  The  replacement,  by  Prussia, 
of  the  old  law  of  negligence  by  its  first  liability  law  of  November  3, 
1838,  relating  only  to  railway  employees,  was  doubtless  based  upon 
the  obvious  hazard  of  that  industry,  which  had  just  then  been  intro- 
duced in  the  country.  Had  there  been  presented  to  Lord  Abinger, 
in  Priestly  vs.  Fowler,  a  situation  where  the  employment  in  which 
the  injury  occurred  was  intrinsically  hazardous,  or  a  case  wherein 
the  circumstances  of  the  injury  were  more  complex  than  those  involved 
in  the  extremely  simple  case  of  a  butcher's  helper  injured  through  the 
carelessness  of  his  master's  wagon  driver,  with  whom  he  customarily 
worked,  it  is  not  improbable  that  the  current  of  our  law  respecting  a 
master's  liability  for  his  servant's  injuries  might  have  been  changed. 
However  that  may  be,  it  is  of  some  interest  to  note,  that  from  these 
contemporaneous  events  there  has  developed  in  Germany  a  system 
of  workmen's  compensation  and  industrial  insurance  which  gives 
prompt  and  effectual  pecuniary  relief,  without  economic  waste,  in  all 


446   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

cases  of  occupational  injuries,  whilst  in  England  and  America,  through 
rigorous  applications  of  the  doctrines  of  fellow-servant  and  assumed 
risks,  there  developed  a  situation  characterized  by  denial  of  pecuniary- 
relief  in  the  great  majority  of  cases  of  industrial  accidents,  great 
economic  waste  arising  out  of  the  conduct  and  defense  of  damage 
suits  and  resultant  antagonism  between  employer  and  employee. 

The  present  movement  in  the  direction  of  workmen's  compensation 
laws  has  proceeded  from  a  recognition  that  the  rules  of  law  governing 
the  workmen's  remedy  for  injury  received  in  the  course  of  his  employ- 
ment, as  formulated  in  the  safe  and  simple  industrial  conditions  of  the 
early  nineteenth  century,  are  not  adapted  to  the  hazardous  and  com- 
plex conditions  of  modern  day  industry  ;  and  it  derives  quite  as  much 
of  its  strength  from  practical  considerations  as  from  sentimental  hu- 
manitarianism. 

Employers'  Liability  Legislation 

The  forerunners  of  the  present  movement  are  the  so-called  employer's 
liability  laws,  abrogating  or  modifying  the  defense  of  fellow-servant 
and,  in  some  instances,  the  defense  of  assumption  of  risks.  As  early  as 
1855  the  State  of  Georgia  passed  a  law,  applicable  to  railroads  only, 
abolishing  the  defense  of  fellow-servant.  In  1872  the  State  of  Iowa 
passed  a  similar  law ;  and  the  example  thus  set  was  followed  by  Kansas 
in  1874,  and  Wisconsin  in  1875.  The  first  statute  relating  to  all  em- 
ployments was  passed  in  England  in  1880.  That  act,  however,  did 
not  abolish  these  defenses ;  it  merely  modified  them.  The  courts  of 
England  had  gone  to  a  considerable  extent  in  the  application  of  the 
doctrines  of  fellow-servant  and  assumption  of  risks,  and  the  object  of 
this  law  was  to  restrict  the  scope  of  those  doctrines.  This  act  has 
served  as  a  model  for  Alabama  (1884),  Massachusetts  (1887), 
Indiana  (1893),  New  York  (1902),  Pennsylvania  (1907),  New  Jersey 
(1909),  Vermont  (1910).  In  addition  to  the  States  thus  enumerated, 
other  States,  as  well  as  the  Federal  Government,  have  passed  laws, 
applicable  to  railroads  only,  abolishing  the  defense  of  fellow-servant ; 
so  that  in  1910,  when  the  first  workmen's  compensation  act  was  passed 
in  this  country,  the  situation  on  this  side  of  the  water  in  respect  of 
employers'  liability  laws  was  as  follows  :  Eight  jurisdictions  had  laws 
modifying,  but  not  entirely  abrogating,  the  defenses  of  fellow-servant 
and  assumption  of  risks  in  all  employments ;  two  jurisdictions  had 
abolished  the  fellow-servant  defense  in  the  case  of  all  corporations, 
and  one  (Colorado)  in  the  case  of  all  employments ;  fourteen  had 
abolished  it,  but  only  in  the  case  of  railroads,  and  three  had  modified 
it  in  the  case  of  railroads. 

After  seventeen  years  of  experience  under  her  employers'  liability 
law,  England  decided  that  it  was  a  failure ;  that  it  did  not  adequately 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   447 

meet  the  conditions  of  modern  industry.  Indeed,  this  was  the  con- 
servative opinion  in  the  early  nineties,  when,  in  a  memorandum  from 
the  Home  oifice  to  the  Royal  Commission  of  Labor  (1893),  which 
bore  the  approval  of  Sir  Frederick  Pollock,  we  find  it  said  :  "The  truth 
is  that  to  the  workman  litigation  under  the  act  has  more  than  its  usual 
terrors.  It  is  not  merely  that  litigation  is  expensive,  and  that  he  is  a 
poor  man  and  his  employer  comparati^'ely  a  rich  one,  it  is  that  when 
a  workman  goes  to  law  with  his  employer  he,  as  it  were,  declares  war 
against  the  person  on  whom  his  future  probably  depends ;  he  seeks  to 
compel  him  by  legal  force  to  pay  money,  and  his  only  mode  of  doing 
so  is  the  odious  one  of  proving  that  his  employer  or  his  agents  —  his 
own  fellow-ser^'ants  —  have  been  guilty  of  negligence.  Add  to  this 
that  the  legal  proof  of  such  negligence  is  often  extremely  difficult,  the 
broad  result  is  that  a  legal  claim  for  damages  only  answers  where 
the  injury  is  very  great,  and  the  workman  is  prepared  to  leave  his 
master's  services."  (Report  of  Wainwright  Commission,  New  York, 
1910,  p.  40.)  The  feeling  in  England  that  the  employers'  liability  law 
was  inadequate  culminated  in  1897,  in  her  first  workmen's  compensa- 
tion act,  which  was  limited  in  its  scope  to  what  were  deemed  hazardous 
employments.  The  act  was  extended  later  (1906)  so  as  to  embrace  all 
occupations,  including  even  domestic  service.  But  the  wisdom  of  this 
extension,  in  the  light  of  experience  under  the  act,  may  be  open  to 
serious  question. 

There  is  no  reason  to  suppose  that  the  employers'  liability  laws  in 
this  country  have  been  any  more  eft'ectual  than  the  one  in  England. 
Those  which  are  not  modeled  strictly  upon  the  English  Act,  but  which 
abrogate  the  fellow-servant  defense,  are  limited,  in  the  main,  to  rail- 
roads ;  and  this  is  only  one  of  the  many  hazardous  industries  in  this 
country.  It  is  conservatively  estimated  that  the  number  of  industrial 
accidents  resulting  in  death  in  this  country  approximated  35,000 
annually,  whilst  the  non-fatal  injuries  exceed  500,000.  It  is,  of  course, 
impossible  to  know  in  what  percentage  of  these  there  is  a  substantial 
recovery ;  but  from  cases  studied  by  the  State  Commissions  of  New 
York  and  Wisconsin  (ibid.  p.  88,  et  seq.)  it  would  appear  that  in  not 
more  than  20  per  cent  is  there  actually  litigation,  and  that  as  to  the 
balance,  in  60  per  cent  of  the  cases  of  death,  and  in  a  like  percentage  of 
the  cases  of  non-fatal  injury,  the  claimant  has  received  either  nothing 
at  all  or,  at  the  most,  only  funeral  or  medical  expenses. 

Under  the  broadest  kind  of  an  employers'  liability  law  there  still 
rests  upon  the  injured  workman,  as  a  prerequisite  to  his  recovery, 
the  burden  of  proving  personal  negligence  on  the  part  of  some  one 
as  the  proximate  cause  of  injury.  Industrial  experts  tell  us  that  in 
the  highly  developed  state  of  organized  industry  there  are,  in  the  case 
of  accidents  not  due  entirely  to  the  dereliction  of  the  workman  himself, 
a  great  many  contributory  factors  in  the  chain  of  causation,  which  are 


448   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

either  in  the  nature  of  minor  personal  faults  or  referable  to  what  are 
commonly  known  as  "trade  risks"  —  a  risk  inevitably  attendant 
upon  the  prosecution  of  the  work,  and  in  respect  to  which  negligence,  in 
the  sense  of  moral  obliquity,  cannot  be  imputed  to  any  one.  It  is 
undoubtedly  true  that  in  a  very  few  cases  can  an  accident  be  said  to  be 
due  exclusively  to  a  trade  risk ;  but,  on  the  other  hand,  particularly  in 
hazardous  employments,  the  trade  risk,  though  minor  faults  may  also 
concur,  is  ordinarily  a  very  responsible  factor  in  accident  causation. 
This  consideration,  coupled  with  the  fact  that  the  invariable  presence 
of  the  trade  risk  and  the  involved  machinery  of  the  modern  industrial 
establishment,  unite  to  render  difficult  the  proof  of  personal  faults 
concurring  in  the  chain  of  causation,  is  the  primary  justification  for 
the  imposition  of  an  absolute  liability  upon  the  employer.  And  the 
obligation,  independently  of  fault,  to  compensate  the  injured  workman 
is  the  principal  feature  of  the  workmen's  compensation  act. 

The  other  feature  is  that  the  measure  of  indemnity  is  made  as  nearly 
just  and  automatic  as  is  possible.  One  of  the  defects  of  the  present 
system,  as  well  under  employers'  liability  statutes  as  under  the  common 
law,  is  that  the  quantum  of  damages  is  left  to  the  determination,  or, 
rather,  conjecture,  of  a  jury.  In  a  workmen's  compensation  act  the 
indemnity  is,  to  a  large  extent,  predetermined  —  the  standard  being 
the  average  weekly  earnings  of  the  workman  at  the  time  of  his  injury. 
Upon  this  standard,  the  computation  of  indemnity  is  rather  a  question 
of  mathematics  than  of  prejudice,  sentiment  or  a  compromise  verdict. 

One  of  the  particular  industrial  evils,  resulting  from  the  present 
system,  is  the  antagonism  that  is  necessarily  created  between  the 
employer  and  employee  when  the  injury  has  occurred.  The  doubt 
surrounding  the  question  of  fault,  the  extreme  divergence  of  indi\'idual 
view  as  to  the  proper  amount  of  compensation,  tend  to  place  the  parties 
in  immediate  hostility  to  each  other,  and  to  furnish  a  strong  induce- 
ment for  each  to  suppress  or  distort  the  facts  relative  to  the  cause  of 
the  injury,  and  thus  close  the  doors  to  scientific  investigation  of  acci- 
dent causation  and  prevention.  By  eliminating  the  cause  of  hostility 
the  workman's  compensation  act  is  calculated  to  promote  harmony 
between  capital  and  labor,  and  by  destroying  the  motive  to  distort 
the  facts  relative  to  the  cause  of  an  injury,  a  serious  impediment  to 
progress  along  the  Hne  of  industrial  safety,  would,  in  all  probability, 
be  removed. 

Compensation  Acts 

Having  thus  considered  the  objects  of  the  compensation  act,  let  us 
address  ourselves  to  the  methods,  as  proposed,  for  the  accomplishment 
of  these  objects.  Various  forms  of  workmen's  compensation  acts, 
some  of  which  have  been  enacted  into  laws,  are  now  receiving  serious 
consideration  in  this  country.     With  regard  to  their  essential  points 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   449 

of  difference,  it  may  be  said  that  they  are  divided,  perpendicularly, 
into  two  classes,  the  direct  and  the  indirect,  and,  horizontally,  into 
two  classes,  the  compulsory  and  the  elective. 

Taking  the  first  classification,  the  difference  between  the  direct  and 
the  indirect  is  this :  In  the  direct,  or,  as  it  is  sometimes  called,  the 
simple  plan  of  compensation,  the  obligation  to  indemnify  the  workman 
rests  immediately  upon  the  person  in  whose  employment  the  injury 
occurred.  Under  the  indirect,  or  state  insurance  plan,  employers 
are  required  by  the  state  to  pay  an  annual  tax,  graded  in  accordance 
with  the  nature  of  the  industry,  and  proportioned  to  the  payroll  of 
the  particular  establishment.  When  the  injury  occurs,  the  workman 
is  paid  indemnity  out  of  this  fund  —  the  fund  being  administered  by 
state  officials. 

Taking  the  second  classification,  the  difference  between  the  compul- 
sory and  elective  is  this  :  The  compulsory  imposes  an  absolute  obliga- 
tion upon  the  employer  to  pay  the  compensation  in  the  one  case,  or  the 
annual  tax  in  the  other.  The  elective,  however,  formulates  a  plan  of 
compensation,  and  then  seeks  to  coerce  the  employer  into  accepting 
it,  by  imposing  the  dreadful  alternative  of  a  wide-open  liability  law ; 
that  is,  it  says  to  him,  "Unless  you  elect  to  come  under  this  scheme, 
you  may  not,  in  the  event  of  suit  for  damages,  avail  yourself  of  the 
following  defenses :  contributory  negligence,  assumption  of  risks  or 
negligence  of  fellow-servant.  Elective  laws  are  peculiar  to  this  coun- 
try, and  were  devised  in  order  to  circumvent  the  difficulties  which, 
it  is  supposed,  are  presented  by  our  written  constitutions  to  the 
enactment  of  a  compulsory  law.  In  March,  191 1,  the  New  York 
Court  of  Appeals  held  that  a  compulsory  direct  compensation  act 
was  unconstitutional,  because  the  imposition  of  liability  upon  the 
employer,  irrespective  of  his  negligence,  amounted  to  a  deprivation 
of  his  property  without  due  process  of  law  (Ives  vs.  South  Buft'alo 
Railway,  201  N.  Y.  271).  On  the  other  hand,  in  September  of  the 
same  year  a  statute  of  the  state  of  Washington,  embod}dng  a  compul- 
sory indirect  or  state  insurance  plan,  was  sustained  by  the  Supreme 
Court  of  that  state  as  a  legitimate  exercise  of  the  police  power,  the 
court  expressly  disapproving  the  New  York  decision  and  regarding 
it  as  a  direct  authority  against  their  position  (The  People  ex  rel. 
Davis-Smith  Company  t'5.  State  Auditor,  107  Pacific  iioi).  In  1911 
Nevada  passed  a  direct  compulsory  act ;  but  the  other  states  which 
have  passed  compensation  acts  have  preferred  to  avoid  the  constitu- 
tional difficulties,  and  have  enacted  elective  laws  —  either  direct 
elective  laws  or  elective  laws  framed  on  the  indirect  or  state  insurance 
plan.  These  to  date  are  New  Jersey,  New  Hampshire,  Wisconsin, 
Illinois,  California,  Kansas,  Rhode  Island  and  Michigan,  which 
have  adopted  the  direct  method  of  compensation ;  Ohio,  which  has 
adopted  substantially  the  indirect  plan ;    and  Massachusetts,  where 


450   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

the  employer,  if  he  elects  to  come  into  the  plan,  must  insure  either 
in  a  private  company  or  in  an  employees'  insurance  association. 
The  constitutionality  of  the  elective  law  has  been  affirmed.  (Borgnis 
vs.  Falk  Company,  147  Wisconsin  327  ;  Opinion  of  Justices,  209  Mass. 
607 ;  Yaple  vs.  Creamer,  85  Ohio  St.) 

Now,  a  word  in  regard  to  the  elective  lav/.  A  strong  objection  to 
this  form  of  enactment  is  that  it  is  not  true  legislation,  but  legislative 
highwaymanship.  "Get  into  the  plan,"  says  the  legislature  to  the 
employer.  "If  you  don't  I  will  take  away  most  of  your  defenses  and 
leave  you  to  the  tender  mercies  of  a  jury,  who  will  penalize  you  with 
their  verdict  for  not  doing  so."  Though  perhaps  they  successfully 
evade  the  constitutional  objections  which  are  supposed  to  inhere  in 
compulsory  acts,  elective  acts  are  nevertheless  fundamentally  unsound. 
They  are  opposed  to  the  theory  of  legislation.  The  function  of  legis- 
lation is  to  prescribe  rules  of  conduct,  and  to  give  these  rules  uniform 
application.  Here,  the  legislature  declares  a  legislative  policy  w'hich 
is  deemed  to  be  wise  and  expedient  in  the  light  of  industrial  conditions, 
and  embodies  that  policy  in  a  rule  of  conduct,  but  the  rule  becomes 
operative  only  when  assented  to  by  the  individual.  It  is  not  only  an 
entirely  novel  and  anomalous  form  of  legislation,  but  if  there  were  any 
likelihood  of  the  permanency  of  elective  acts,  it  might  prove  to  be  a 
dangerous  precedent.  Elective  acts  cannot  be  considered  as  anything 
more  than  a  temporary  makeshift  in  the  progress  of  the  workmen's 
compensation  movement.  Employers  have  not,  as  a  rule,  with  the 
possible  exception  of  New  Jersey,  availed  themselves  of  the  plan  of 
compensation  so  provided,  and  it  may  be  said  that  these  acts  have 
failed  to  possess  the  coerciveness  expected  of  them.  The  prevailing 
opinion  is  that,  as  measures  of  reform,  they  have  demonstrated  their 
ineffectiveness,  that  they  possess  no  practical  advantages  over  em- 
ployers' liability  acts,  and  that  anything  short  of  a  compulsory  law  will 
be  of  no  real  benefit.  This  trend  of  thought  is  reflected  in  the  action 
of  the  Federal  Commission,  appointed  to  draft  a  national  workmen's 
compensation  act  applicable  to  interstate  railroads.  After  giving  due 
consideration  to  the  supposed  constitutional  difficulties,  the  Commis- 
sion has  recommended  a  compulsory  act  embodying  the  direct  plan  of 
compensation,  and  the  bill  as  submitted  by  it  has  passed  the  Senate. 

Being  thus  confronted  with  the  consideration  that  if  a  workmen's 
compensation  act  is  to  possess  any  real  merit  as  such,  it  must  first  of 
all  be  compulsory,  and  there  appearing  to  be  a.  diversity  of  view, 
reflected  in  the  laws  already  passed,  as  to  which  method  of  compensa- 
tion —  the  direct  or  the  indirect  —  possesses  the  greater  merits  it 
becomes  of  some  interest  to  consider  the  constitutional  questions  in- 
volved in  a  compulsory  law,  and  to  weigh  the  relative  merits  of  these 
two  methods. 

Under  the  direct  method  there  is  imposed  upon  the  particular  em- 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   451 

ployer  an  obligation  to  compensate  the  workman  for  every  injury 
"arising  out  of,  and  in  the  course  of,  the  employment,"  irrespective  of 
the  cause  of  the  injury,  save  in  this  respect,  that  if  it  be  proved  the 
injury  resulted  from  the  workman's  intoxication  or  from  his  deliberate 
intention  to  cause  the  injury,  or  from  some  breach  of  statutory  regu- 
lations, no  compensation  is  payable.  The  act  may  superimpose  this 
obligation  upon  the  common  law  liability  of  the  employer  to  respond 
in  unliquidated  damages,  if  the  injury  were  caused  by  his  personal 
fault,  lea^'ing  it  optional  with  the  workman,  after  the  injury,  to  accept 
compensation  or  to  sue  at  law ;  or  the  act  may  make  the  remedy  of 
compensation  exclusive  of  all  others.  Having  regard  to  the  purpose 
of  workmen's  compensation  acts,  the  exclusive  act  is  to  be  preferred." 
The  alternative  remedy  in  tort  would  make  the  employers'  obligation 
uncertain,  and  would  appeal  too  strongly  to  the  gambling  spirit  of 
the  injured  workman.  The  scale  of  compensation  is  based  upon  the 
earnings  of  the  workman  during  his  period  of  employment.  The 
particular  amount  of  compensation  in  non-fatal  cases,  depends  upon 
whether  total  or  only  partial  incapacity  for  work  results,  and  is  payable 
in  weekly  amounts  during  the  period  of  disability,  with  an  appro- 
priate limit,  say,  eight  years.  In  case  of  his  death  the  particular 
amount  of  compensation  is  conditioned  upon  the  extent  to  which  his 
survivors,  if  he  leaves  any,  were  dependent  upon  his  earnings.  In  a 
non-fatal  case  the  act  would  prescribe,  for  instance,  that  during  total 
incapacity  he  should  receive  50  per  cent  of  his  average  weekly  earnings, 
but  in  no  case  more  than,  say,  ten  dollars  a  week.  In  case  of  partial 
incapacity  this  weekly  compensation  would  be  diminished  as  the  cir- 
cumstances of  his  incapacity  warranted.  In  the  case  of  death,  if 
his  survivors  were  wholly  dependent  upon  his  earnings,  they  would 
receive,  for  instance,  a  sum  equal  to,  say,  two  hundred  times  his 
average  weekly  earnings  during  his  term  of  employment,  subject  to  a 
maximum  of,  say,  S3000.  If  his  survivors  were  only  partly  dependent 
upon  his  earnings,  then  this  sum  would  be  diminished  as  the  circum- 
stances of  their  dependency  warranted.  If  he  left  no  dependents, 
the  compensation  would  be  limited  to  medical  and  funeral  expenses. 
Although  it  is  thus  attempted  to  make  the  scheme  of  compensation 
as  nearly  just  and  automatic  as  possible,  and  although  the  ingredient 
of  employers'  fault  is  eliminated,  questions  would  be  likely  to  arise 
within  the  scope  of  the  plan  as  so  defined.  Did  the  injury  arise  out  of 
and  in  the  course  of  the  employment  ?  Did  it  result  from  intentional 
misconduct  on  the  part  of  the  workman  ?  Is  the  incapacity  total  or 
only  partial?  If  partial,  how  much  compensation  would  be  just? 
If  it  was  originally  a  total  incapacity,  has  it  since  diminished?  Or 
if  originally  partial,  has  it  since  increased?  The  act  should  seek  to 
encourage  the  adjustment  of  these  disputes  in  the  first  instance,  by 
agreement  between  the  parties,  and,  failing  that,  by  submission  to  a 


452       LABOR  LAWS  AND  THE  LABOR  CONTRACT 

disinterested  arbitrator  selected  by  the  parties  or  an  adjuster  ap- 
pointed by  the  court,  the  decision  of  either  to  be  subject  to  review  by  a 
court  or  jury  upon  the  application  of  either  party.  The  Federal  bill 
adopts  this  procedure,  and  provides  for  the  appointment  of  an  adjuster 
for  each  judicial  district,  to  whom,  in  the  first  instance,  disputes  are 
to  be  submitted. 

The  State  Insurance  plan  is  best  exemplified  in  the  Session  Laws 
of  the  State  of  Washington  for  191 1,  chapter  74.  The  salient  features 
of  that  act  are  these :  The  act  first  declares  itself  to  be  an  exercise  of 
the  police  power ;  it  then  enumerates  the  various  industries  in  the  state 
which  are  deemed  to  be  hazardous,  classifies  these  industries,  and  im- 
poses an  annual  tax  upon  the  employers  therein  for  the  maintenance 
of  an  industrial  insurance  fund.  This  tax  takes  the  form  of  a  percent- 
age of  the  particular  employer's  payroll,  and  the  percentages  range, 
over  the  list  of  classified  industries,  from  10  per  cent  in  the  case  of 
powder  works  to  i|  per  cent  in  th'e  least  hazardous.  The  act  pro\ddes 
for  the  administration  of  the  fund  by  an  industrial  insurance  depart- 
ment, consisting  of  three  commissioners ;  provides  that  in  the  event  of 
injury  (unless  due  to  his  intentional  misconduct),  the  workman  may 
either  pursue  his  common  law  remedy  against  the  employer  or  assign 
his  right  of  action  to  the  commission,  and  take  the  compensation  pro- 
vided in  the  act ;  this  compensation  takes  the  form  of  periodic  pay- 
ments by  the  commission  during  the  period  of  disability,  somewhat  in 
the  nature  of  the  payments  to  which  I  have  just  alluded  under  the 
direct  method.  Periodic  payments  are  also  made  to  the  dependents 
in  the  case  of  death,  but  these  may  be  commuted  by  the  payment  of 
a  lump  sum.  The  act  also  provides  for  a  court  review  of  any  decision 
of  the  commissioners. 

From  this  outline  of  the  two  methods  of  compensation,  as  now  pro- 
posed, it  is  interesting  to  observe  a  fundamental  difference  in  the  prin- 
ciple involved.  The  direct  method  is  the  more  logical  development 
of  our  common  law,  and  is  constructed  upon  the  idea  of  indi\'idualism. 
The  indirect  is  constructed  upon  the  idea  of  collecti\dsm,  and  in  that 
respect  it  is  socialistic  in  its  conception.  The  direct  is  a  system  of 
compensation,  pure  and  simple.  The  indirect  partakes  more  of  the 
nature  of  poor  relief  than  of  compensation. 

Constitutionality  of  the  Compulsory  Act 

Now%  what  are  the  constitutional  questions  presented  in  the  case 
of  a  compulsory  act?  The  principal  ones  are  these:  (a)  Does  the 
imposition  of  a  liability  in  the  absence  of  negligence  amount  to  a 
deprivation  of  property  without  due  process  of  law  ?  (b)  In  the  case 
of  an  exclusive  act,  does  the  abolition  of  the  workman's  common  law 
remedy  in  liquidated  damages  for  employer's  negligence  violate  this 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   453 

or  kindred  constitutional  provisions?  (c)  If  amounting  to  a  depriva- 
tion of  property,  may  these  acts,  nevertheless,  be  sustained  as  a  le- 
gitimate exercise  of  the  police  power  ?  There  are  other  constitutional 
questions  which  must  be  considered  in  the  drafting  of  compensation 
acts,  such  as,  for  instance,  the  question  of  trial  by  jury  and  the  guar- 
anty as  to  the  equal  protection  of  the  laws ;  but  the  ones  I  have  enu- 
merated are  the  fundamental  and  basic  questions,  and  I  shall  limit 
my  discussion  to  these. 

(a)  First,  then,  does  the  imposition  of  a  liability  upon  the  employer, 
irrespective  of  his  negligence  or  the  personal  negligence  of  his  agents, 
amount  to  a  deprivation  of  his  property,  within  the  meaning  of  the 
prohibition,  common  to  the  Federal  and  all  State  Constitutions,  that 
one  may  not  be  deprived  of  "life,  liberty  or  property  without  due  pro- 
cess of  law,"  or,  as  synonymously  phrased  in  the  Maryland  Consti- 
tution (Declaration  of  Rights,  Article  23),  "except  by  the  law  of  the 
land"? 

Independently  of  the  police  power,  the  legislature  has  the  reserved 
power,  in  the  exercise  of  its  wisdom  and  discretion,  to  regulate  rules 
of  conduct,  and  to  adjust  and  readjust  rights  and  duties  arising  in 
the  social  relations.  Within  the  limitations  placed  by  the  written 
Constitution  upon  its  exercise,  this  power  is  supreme.  It  is  repeatedly 
exercised  by  legislatures  to  amend  and  repeal  the  rules  of  the  common 
law,  and  could,  therefore,  with  equal  propriety  be  exercised  to  amend 
or  repeal  the  rule  of  the  common  law  relating  to  employers'  liability 
unless  prohibited  by  some  constitutional  limitation.  Is  the  exercise 
of  this  power  in  such  a  manner  prohibited  by  the  limitation  to  which  I 
have  just  alluded  ?  The  New  York  Court  of  Appeals,  in  the  Ives  case, 
says  that  it  is,  because,  to  state,  in  the  court's  own  language,  the  prop- 
osition upon  which  its  view  is  rested  :  "  W^hen  our  Constitutions  were 
adopted  it  was  the  law  of  the  land  that  no  man  who  was  without  fault 
or  negligence  could  be  held  liable  in  damages  for  injuries  sustained  by 
another." 

It  is  entirely  true  that  due  process  of  law  means  in  accordance  with 
the  law  of  the  land  at  the  time  our  Constitutions  were  adopted ; 
but  when  the  court  says  that,  under  the  law  of  the  land,  no  man 
who  was  without  fault  or-  negligence  could  be  held  liable  in  dam- 
ages for  injuries  sustained  by  another,  the  court  undoubtedly  mis- 
conceived the  scope  and  meaning  of  the  phrase  —  "the  law 
of  the  land."  In  applying  that  standard  to  legislative  enact- 
ments we  are  presented  with  two  very  opposite  considerations.  On 
the  one  hand,  to  quote  the  words  of  Daniel  Webster  in  the  Dartmouth 
College  case,  "everything  which  may  pass  vmder  the  form  of  an  enact- 
ment is  not  to  be  considered  the  law  of  the  land,"  and  on  the  other,  it  is 
self-evident  that  the  constitutional  limitation  respecting  due  process 
of  law  was  not  intended  to  put  the  legislature  in  a  strait-jacket,  so 


454       LABOR   LAWS   AND   THE   LABOR   CONTRACT 

that  it  might  effect  no  repeal  nor  amendment  of  the  rules  of  law  as 
they  existed  when  our  Constitutions  were  adopted.  In  determining 
whether  a  statutory  modification  of  the  common  law  contravenes  the 
due  process  clause,  the  oft-quoted  language  of  Mr.  Justice  Johnson,  of 
the  Supreme  Court  of  the  United  States,  in  Bank  of  Columbia  vs. 
Okeley  (2  Wheaton  244),  is  very  much  in  point.  He  says :  "As  to  the 
words  from  the  Magna  Charta,  incorporated  in  the  Constitution  of 
Maryland,  after  volumes  spoken  and  written  with  a  view  to  their 
exposition,  the  good  sense  of  mankind  has  at  length  settled  down  to 
this  —  that  they  were  intended  to  secure  the  individual  from  the  arbi- 
trary exercise  of  the  powers  of  government,  unrestrained  by  the 
established  principles  of  private  rights  and  distributive  justice."  Re- 
ferring to  this  constitutional  limitation,  Judge  Alvey  says  (Rock  Hill 
College  vs.  Jones,  47  Md.  18) :  "But  a  right  to  be  within  its  protection 
must  be  a  vested  right.  It  must  be  something  more  than  a  mere  ex- 
pectation based  upon  the  anticipated  continuance  of  the  existing  law." 
Chief  Justice  Waite  in  Munn  vs.  Illinois  (94  U.S.  134)  uses  the  follow- 
ing language,  which  is  most  appropriate  to  the  point  now  under  con- 
sideration, and  which  has  been  reaffirmed  time  and  again  by  the 
United  States  Supreme  Court:  "A  person  has  no  property,  no  vested 
interest  in  any  rule  of  the  common  law.  That  is  only  one  of  the 
forms  of  municipal  law,  and  is  no  more  sacred  than  any  other.  Rights 
of  property  which  have  been  created  by  the  common  law  camiot  be 
taken  away  without  due  process,  but  the  law  itself,  as  a  rule  of  conduct, 
may  be  changed  at  the  will  of  any  legislature  unless  prevented  by  con- 
stitutional limitations.  Indeed,  the  great  office  of  statutes  is  to 
remedy  defects  in  the  common  law  as  they  are  developed,  and  to  adapt 
it  to  the  changes  of  time  and  circumstances." 

It  would  seem,  therefore,  that  when  We  are  to  determine  whether 
the  constitutional  limitation  in  question  is  transgressed  by  a  statutory 
modification  or  repeal  of  an  existing  rule  of  liability  under  the  common 
law,  our  concern  should  be  whether  the  alteration  is  arbitrary,  in  that 
it  violates  the  fundamental  principle  of  our  jurisprudence,  upon  which 
the  preexisting  rule  of  liability  rests.  A  statute  which  undertook 
to  so  modify  the  law  of  contract  as  to  require  a  man  to  pay  his  neigh- 
bor's debts  would  conceivably  be  unconstitutional ;  similarly  would  a 
statute  which  undertook  to  change  the  law  of  tort  by  making  one  em- 
ployer directly  liable,  independently  of  his  causal  connection,  to 
compensate  the  workman  of  another  employer  for  injuries  received. 
These  would  be  arbitrary.  How  about  a  statute  making  an  employer 
liable  to  compensate  for  injuries  to  his  own  workman,  due  not  to  the 
negligence  or  fault  of  the  employer  or  that  of  his  agents,  but  rising  out 
of,  and  in  the  course  of,  a  hazardous  employment  ?  Is  that  arbitrary  ? 
Does  that  violate  the  principle  upon  which  the  rule  of  liability  for 
negligence  rests?     In  saying  that  it  was  the  law  of  the  land  that  no 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   455 

man  who  was  without  fault  or  negligence  could  be  held  liable  in  dam- 
ages for  injuries  sustained  by  another,  the  New  York  Court  of  Appeals 
obviously  confused  a  rule  of  negligence  with  a  principle  of  tort  liability, 
and  accorded  to  the  employer  a  vested  right  in  the  former.  As  the  law 
of  the  land  has  reference  not  to  the  mere  rules  of  law  in  particular 
cases,  but  to  the  fundamental  principles  of  hability,  it  is  not  true  that, 
at  the  time  our  Constitutions  were  adopted,  it  was  the  law  of  the 
land  that  no  man  who  was  without  fault  or  negligence  could  be  held 
liable  in  damages  for  injuries  sustained  by  another.  Liability  for 
personal  injuries  sustained  by  another  is  not  predicated  fundamentally 
upon  fault  or  negligence,  but  rather  upon  the  question  whether  the 
individual  to  be  charged  with  liability  is  such  a  factor  in  the  chain  of 
causation  as  that  he  may  be  deemed  to  have  had  a  responsible  connec- 
tion with  the  injury  ;  and  if  the  instrumentality  through  which  the 
injury  is  caused  be  conducted  primarily  for  the  benefit  of  the  individual, 
he  has  that  responsible  connection  with  the  injury,  and  it  is  not  arbi- 
trary, but  reasonable  and  just,  if  he  be  made  to  indemnify  the  injured 
person.  Numerous  instances  of  liability  at  common  law  illustrate 
that  the  principle  of  tort  liability  is  related  to  these  considerations, 
rather  than  to  the  concept  of  fault  on  the  part  of  the  indi^•idual 
charged.  Take,  for  instance,  the  liability  of  a  shipowner  for  the  care 
and  maintenance  of  disabled  seamen.  The  rule  of  personal  liability 
embodied  in  the  maxim  qui  facit  per  alium  facit  per  se  rests  not  upon 
a  notion  of  actual  fault  on  the  part  of  the  individual  charged  with 
liability,  but  upon  the  reasonable  imputation  of  fault  arising  out  of 
his  responsible  connection  with  the  instrumentality  through  which 
the  injury  was  caused.  The  rule  of  respondent  superior  rests  upon 
even  broader  considerations  of  justice ;  it  is  directly  opposed  to  the 
concept  of  fault,  either  actual  or  imputed,  upon  the  part  of  the  prin- 
cipal, for  it  is  applied  to  cases  where  he  actually  disapproved  or  forbade 
the  act  which  caused  the  injury.  The  rule  embodied  in  the  maxim 
sic  idere  luo  ut  alienum  non  laedas,  requiring  the  owner  of  a  dangerous, 
but  lawful,  contrivance  to  operate  it  at  his  peril,  is  but  a  further  illus- 
tration of  the  fact  that,  under  the  law  of  the  land,  liability  for  injuries 
to  another  is  not  necessarily  related  to  fault  or  negligence.  The  same 
is  true,  in  a  measure,  of  the  doctrine  of  res  ipsa  loquitur,  under  which 
a  person  for  whose  benefit  an  undertaking  likely  to  cause  injury  is 
conducted,  may  be  held  liable  for  the  consequences  thereof,  even 
though  the  undertaking  be  conducted  by  an  independent  contractor. 
Mainly  upon  these  considerations  the  Supreme  Court  of  the  United 
States  has  recognized  and  applied  the  doctrine  that  a  state  legislature 
may  impose  a  liability  without  fault.  In  the  case  of  Railroad  Company 
vs.  Matthews  (165  U.S.  9)  the  court  sustained  a  statute  imposing  upon 
railroad  companies  an  absolute  liability  for  loss  resulting  from  fires 
from  their  engines.     In  the  case  of  Clark  vs.  Russell  (97  Fed.  900) 


456   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

the  Circuit  Court  of  Appeals  for  the  Eighth  Circuit  applied  the  same 
doctrine  to  a  statute  of  Nebraska  imposing  liability  upon  rail- 
road companies  for  all  physical  injuries  to  passengers  unless  due  to 
the  criminal  negligence  of  the  passenger  himself.  In  a  case  involving 
the  validity  of  the  same  statute,  Chicago  Railroad  vs.  Zernecke  (183 
U.S.  582)  the  Supreme  Court  of  the  United  States  discussed  at  length 
the  right  of  a  legislature  to  impose  such  a  liability,  irrespective  of 
fault,  and  reaffirmed  that  rule  of  constitutional  law,  but  sustained 
the  particular  statute  on  other  grounds. 

It  would  seem  to  follow,  therefore,  both  on  reason  and  authority, 
that  there  is  nothing  arbitrary,  nothing  violative  of  vested  rights, 
nothing  in  contravention  of  the  law  of  the  land  for  a  state  legislature 
to  impose  upon  employers  engaged  in  occupations  which  experience 
fairly  demonstrates  are  intrinsically  hazardous,  a  liability,  irrespec- 
tive of  the  employer's  negligence,  to  compensate  his  workmen  for 
occupational  injuries ;  and  that  such  a  law  may  be  sustained,  inde- 
pendently of  the  police  power.  But  it  would  seem  to  follow  that  such 
a  law  must  be  one  of  direct  liability,  and  that  the  taxation  of  employers 
generally  to  maintain  a  state  insurance  fund  involving,  as  it  does,  the 
taking  of  the  property  of  one  employer  to  pay  the  obligations  of  another 
for  injuries  with  which  the  former  has  no  responsible  connection,  can 
be  sustained,  if  at  all,  only  as  a  legitimate  exercise  of  the  police  power. 

{b)  When  we  come  to  the  question  as  to  whether  a  compensation 
act  may  be  made  exclusive ;  that  is,  whether  the  workman's  common 
law  remedy  in  tort  for  the  employer's  negligence  may  be  abrogated, 
it  would  seem,  on  first  impression,  that  the  observations  heretofore 
made  with  respect  to  the  power  of  the  legislature  to  repeal  a  rule  of 
negligence  would  apply  with  equal  force.  If  the  legislature  may 
abolish  a  defense  based  upon  a  rule  of  negligence,  may  it  not  also 
abolish  a  right  of  action  arising  out  of  negligence?  If  the  employer 
has  no  vested  right  in  a  rule  of  negligence,  has  the  employe  3  a  vested 
right  in  a  common  law  cause  of  action  for  negligence  which  has  not  yet 
accrued?  The  Supreme  Court  of  the  United  States  has  answered  this 
in  the  negative  by  sustaining  a  statute  of  Pennsylvania  which,  in 
substance,  abolished  a  common  law  right  of  action  for  personal 
injury  arising  out  of  another's  negligence.  The  court  said  that 
"If  it  be  conceded  that  the  plaintiff  in  error  could  have  re- 
covered but  for  the  statute,  it  does  not  follow  that  the  Legislature 
of  Pennsylvania  in  preventing  a  recovery  took  away  a  vested  right 
or  a  right  of  property.  As  the  accident  from  which  the  cause  of  action 
is  asserted  to  have  arisen  occurred  long  after  the  passage  of  the  statue, 
it  is  difficult  to  grasp  the  contention  that  the  statute  deprived  the  plain- 
tiff in  error  of  the  rights  just  stated"  (Martin  vs.  Pittsburg  &  C.  R.  Co., 
203  U.S.  284,  295).  See  also  views  of  Mr.  Justice  Holmes  in  Atchison 
&  C.  R.R.  vs.  Sowers,  213  U.S.  55,  and  Sawyer  vs.  El  Paso  &  C.  R.  Co. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   457 

(Texas),  108  S.  W.  719.  Upon  the  views  thus  expressed  the  Federal 
Commission  has  recommended  an  exclusive  compensation  act  for 
railroads. 

With  reference  to  the  law  of  the  land,  however,  it  cannot  be  said 
that  the  right  of  action  for  personal  injuries  arising  from  the  negligence 
of  another  rests  upon  exactly  the  same  considerations  as  the  defense  of 
non-liability  except  for  negligence.  There  may,  as  we  have  seen, 
be  cases  in  the  common  law  of  tort  liability  for  personal  injury,  in- 
dependently of  neghgence ;  but,  on  the  other  hand,  does  the  common 
law  afford  any  illustrations  where  there  is  no  right  of  action  for  per- 
sonal injury  directly  caused  by  the  intentional  misconduct,  fault 
or  moral  obliquity  of  another,  if  he  be  sui  juris  ?  In  point  of  principle, 
the  abolition  of  the  workman's  common  law  remedy,  without  more, 
might  conceivably  be  open  to  the  objection  that  it  is  "an  arbitrary 
exercise  of  the  powers  of  government  unrestrained  by  the  established 
principles  of  .  .  .  distributive  justice  "  ;  but  if,  at  the  same  time,  he  is 
given,  in  lieu  thereof,  the  benefit  of  a  plan  of  compensation  which, 
under  existing  conditions,  fully  accords  with  the  notion  of  distributive 
justice,  the  objection  would  seem  to  fade  away. 

This  question  would,  perhaps,  be  rendered  more  difficult  in  Mary- 
land because  of  the  further  provision  in  our  Declaration  of  Rights  (Art. 
19) :  "That  every  man  for  any  injury  done  him  in  his  person  or  prop- 
erty ought  to  have  remedy  by  the  course  of  the  Law  of  the  Land, 
and  ought  to  have  justice  and  right,  freely  without  sale,  fully  without 
any  denial,  and  speedily  without  delay,  according  to  the  Law  of  the 
Land."  Would  the  remedy  under  a  plan  of  compensation  be  a  remedy 
within  the  contemplation  of  this  provision?  It  is  not  a  remedy  which 
was  known  to  the  common  law.  It  is  a  brand  new  remedy  created 
by  statute,  which  logic  and  experience  demonstrate  is  more  suited 
to  our  modern  conditions,  and  more  promotive  of  average  justice. 
The  constitutional  provision  does  not  in  terms  guarantee  the  continu- 
ance of  common  law  remedies,  but  says  that  a  man  "ought  to  have 
remedy  by  ihe  course  of  the  Law  of  the  Land,"  and  "ought  to  have 
justice  and  right  .  .  .  according  to  the  Law  of  the  Land."  Was  it 
intended  by  these  words  to  perpetuate  all  preexisting  common  law 
remedies?  As  we  have  observed,  the  law  of  the  land  does  not  neces- 
sarily mean  the  rules  of  the  common  law,  but  rather  the  abstract 
principles  of  justice,  which  find  their  concrete  expression  in  these  rules. 
May  it  not  be  fairly  argued,  then,  upon  the  same  considerations  that 
the  due  process  of  law  clause  is  construed,  that  the  purpose  of  this 
provision  was  to  preclude  such  arbitrary  action  as  the  virtual  denial  of 
redress  for  injuries?  And  if  a  preexisting  common  law  remedy  be 
modified  by  the  substitution  of  a  substantial  and  adequate  remedy, 
which  may  reasonably  be  said,  in  the  interests  of  distributive  justice, 
to  be  more  suited  to  our  changed  conditions,  and  if  the  individual  be 


458   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

allowed  his  day  in  court  for  the  enforcement  of  that  remedy,  is  that 
such  arbitrary  action  as  would  contravene  the  spirit  and  intent  of  this 
Declaration  of  Rights  ?  In  states  where  a  similar  provision,  embodied 
in  the  Constitution  itself,  embraced  also  injuries  to  reputation  or 
character,  the  question  has  been  presented  as  to  the  constitutionality 
of  a  statute  which,  under  certain  circumstances,  limited  the  remedy  in 
a  libel  suit  to  damages  to  property  rights — thus  eliminating  damages 
to  reputation  —  and  there  are  conflicting  decisions  as  to  the  validity 
of  such  a  statute  (Parker  vs.  Detroit  Free  Press,  72  Mich.  56  ;  Allen  vs. 
Pioneer  Press,  40  Minn.  117;  Hanson  vs.  Krechtril,  68  Kansas 
670).  In  these  cases  the  statute  abridged  the  remedy  at  common 
law,  but  it  did  so  by  abolishing  that  part  of  it  which  related  to 
injuries  to  reputation,  and  in  respect  of  such  injuries  (a  remedy 
for  which  was  guaranteed  by  the  Constitution)  the  legislature 
gave  no  equivalent  remedy.  The  workman's  compensation  act, 
however,  proposes  to  substitute  for  the  narrower  remedy  based 
upon  negligence  the  broader  remedy  of  compensation  for  all  occupa- 
tional injuries  —  a  remedy  which  is  more  just,  more  appropriate  and, 
in  the  light  of  experience  in  England,  where,  in  death  cases,  the 
average  of  compensation  awards  has  exceeded  the  average  damages 
recovered  under  the  alternative  remedy  in  tort,  it  is  a  remedy  of  more 
actual  value  to  the  workman.  (Report  of  Federal  Commission  on 
Workman's  Compensation,  p.  102.) 

(c)  We  have  thus  far  regarded  the  compulsory  act  without  reference 
to  the  police  power.  Let  us  now  consider  whether  the  compulsory  act 
in  either  form  —  direct  or  indirect  —  has  any  substantial  basis  as  a 
legitimate  exercise  of  the  police  power,  and  if  so,  which  of  these  two 
methods  has  the  stronger  claim  on  consideration  in  that  respect. 

There  can  be  no  doubt  that  the  police  power  of  the  state  survived 
the  constitutional  limitations  which  we  have  thus  far  discussed. 
"That  a  state,  in  the  bona  fide  exercise  of  its  police  power  may  interfere 
with  private  property,  and  even  order  its  destruction,  is  as  well  settled 
as  any  legislative  power  can  be."  So  says  the  Supreme  Court  of  the 
United  States,  accompanying  its  statement  of  the  proposition  with 
numerous  concrete  illustrations  (Sentell  vs.  Orleans  and  C.  R.  Co., 
166  US.  698). 

In  the  Ives  case  {supra)  the  New  York  Court  of  Appeals,  ha\dng  a 
direct  liability  act  before  it,  says  that  such  an  act  cannot  be  justified 
under  the  police  power,  because  "it  does  nothing  to  conserve  the 
health,  safety  or  morals  of  the  employees,  and  it  imposes  upon  the  em- 
ployer no  new  or  affirmative  duties  or  responsibilities  in  the  conduct  of 
his  business.  Its  sole  purpose  is  to  make  him  liable  for  injuries  which 
may  be  sustained  wholly  without  his  fault.  .  .  ."  On  the  other  hand, 
the  Supreme  Court  of  Washington  rested  the  validity  of  the  Insurance 
Act  of  that  State  upon  the  police  power. 


LABOR  LAWS   AND   THE   LABOR   CONTRACT      459 

The  scope  of  the  police  power  has  never  been  susceptible  of  accurate 
definition.  The  \iews  of  various  courts  have  ranged  from  the  narrow 
definition  that  the  enactment  must  be  directly  related  to  the  public 
health,  safety  or  morals,  to  the  recently  expressed  view  of  Mr.  Justice 
Holmes  (Noble  State  Bank  vs.  Haskell,  219  U.S.  104,  in)  that  "It 
may  be  put  forth  in  aid  of  what  is  sanctioned  by  usage  or  held  by  pre- 
vailing morality  to  be  greatly  and  immediately  necessary  to  the  public 
welfare."  An  undoubted  attribute  of  compensation  acts  is  that  they 
would  have  a  tendency  to  alleviate  material  suffering  and  to  prevent 
pauperism.  But  it  is  doubtful  whether  this  is  a  sufficient  considera- 
tion upon  which  to  justify  them  as  a  legitimate  exercise  of  govern- 
mental powers.  (See  opinion  late  Justice  Brewer  while  sitting  on 
Supreme  Court  of  Kansas  in  State  vs.  Owaskee  Township,  14  Kansas 
418;  also  Lowell  vs.  Boston,  in  Mass.  454.  Cf.  North  Dakota  vs. 
Nelson  County,  i  N.  D.  89).  The  court  in  the  Washington  case  alludes 
to  the  fact  that  under  the  common  law  the  losses  arising  from  occupa- 
tional accidents  "have  been  borne  by  the  injured  workmen  them- 
selves, by  their  dependents  or  by  the  state  at  large,"  and  imputes 
to  the  legislature,  in  enacting  the  law,  a  belief  "that  they  should  be 
borne  by  the  industries  causing  them,  or,  perhaps  more  accurately, 
by  the  consumers  of  the  products  of  those  industries."  "That  the 
principle  thus  sought  to  be  put  into  effect,"  continues  the  court,  "is 
economically,  sociologically  and  morally  sound  we  think  must  be 
conceded.  .  .  .  Indeed,  so  universal  is  the  sentiment  that  to  assert 
the  contrary  is  to  turn  the  face  against  the  enlightened  opinion  of 
mankind." 

To  thus  determine  the  scope  of  the  police  power  may  seem  to  con- 
servatives a  rather  advanced  position  to  take,  and  though  we  ought 
not  shut  our  e^'es  to  economic,  sociological  and  moral  considerations 
(there  is  a  seeming  tendency  in  courts  to  attach  great  importance  to 
these  in  determining  the  validity  of  acts  related  to  social  betterment), 
their  application  in  the  determination  of  constitutional  questions,  un- 
less analyzed  with  finer  discrimination  than  was  exhibited  by  the 
Washington  Court,  is  likely  to  create  dangerous  precedents.  Be 
that  as  it  may,  however,  all  that  was  observed  in  respect  of  the  Wash- 
ington act  applies  with  equal  truth  to  a  direct  liability  act ;  and  the 
latter  possesses  an  additional  attribute  which  gives  it  greater  claim  upon 
our  consideration  as  an  exercise  of  the  police  power.  The  imposition 
of  direct  liability  upon  the  employer,  incidentally,  but  much  more 
effectually,  accomplishes  the  same  results  as  factory  regulations. 
Inasmuch  as  the  burden  of  compensation  falls  directly  upon  the  in- 
dividual employer,  there  is  an  active  inducement  for  him  to  adopt 
every  measure  of  safety,  in  order  to  minimize  the  likelihood  of  injury 
to  his  workmen.  Results  under  the  English  Compensation  Act  of 
1897  seem  to  demonstrate  that  this  is  true  in  practice.     Does  this 


46o   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

attribute  of  the  direct  liability  method  applied  to  dangerous  trades 
bring  it  within  the  purview  of  the  police  power?  Undoubtedly 
factory  regulations  designed  to  conserve  the  safety  of  employees  by 
reducing  the  number  of  injuries  may  be  justified  under  the  police 
power.  Does  it  make  any  substantial  difference  that  instead  of  im- 
posing specific  duties  upon  employers,  and  a  civil  hability  or  criminal 
penalty  for  violation  of  those  duties,  the  legislature  uses  an  indirect 
method  to  accomplish  the  same  result?  The  language  of  the  Supreme 
Court  of  the  United  States  in  Atchison  Railroad  vs.  Matthews  (174 
U.S.  96,  102)  seems  very  much  in  point.  The  court,  in  passing  upon 
the  validity  of  a  Kansas  statute  which  imposed  upon  railroad  com- 
panies an  absolute  liability  in  cases  of  fire  communicated  by  their 
engines,  says  :  "If,  in  order  to  accomplish  a  given  beneficial  result  — 
a  result  which  depends  on  the  action  of  a  corporation,  the  legislature 
has  the  power  to  prescribe  a  specific  duty  and  punish  a  failure  to 
comply  therewith  by  a  penalty,  either  double  damages  or  attorney's 
fees,  has  it  not  equal  power  to  prescribe  the  same  penalty  for  fail- 
ing to  accomplish  the  same  result,  leaving  to  the  corporation  the 
selection  of  the  means  it  deems  best  therefor?  Does  the  power  of 
the  legislature  depend  on  the  method  it  pursues  to  accomplish  the 
result?" 

The  contrast  between  the  opinion  of  the  New  York  Court  of  Appeals 
and  that  of  the  Supreme  Court  of  Washington  is  interesting,  because 
it  denotes  the  extreme  conservatism  of  the  one  and  the  rather  advanced 
views  of  the  other.  Upon  the  whole,  it  would  seem  that,  in  the  aspect 
of  constitutionality,  the  statute  which  the  New  York  Court  declared 
invalid  is  supported  by  weightier  considerations  than  the  one  which 
the  Washington  Court  sustained ;  and  the  same  is  true  as  regards 
its  economic  and  political  aspects.  These  I  shall  refer  to  only  in  the 
most  general  manner. 

As  we  have  observed,  a  direct  liability  law  has  a  regulative  eft"ect, 
a  tendency  to  minimize  accidents,  a  result  which  cannot  be  predicated 
of  a  system  which  imposes  the  burden  of  compensation,  primarily, 
not  upon  the  employer  himself,  but  upon  a  state  fund  maintained  by 
a  general  tax  —  a  system  which  in  reality  subsidizes  the  carelessly 
conducted  concerns  at  the  expense  of  their  more  efficient  competitors. 
Furthermore,  the  administration  of  rehef  by  the  public  authorities  is 
more  likely,  either  through  good  nature,  undue  sympathy  or  the  in- 
disposition to  antagonize  the  voter,  to  lead  to  imposition,  frauds  and 
to  encourage  malingering.  Once  the  disabled  workman  has  fastened 
himself  upon  the  benevolence  of  a  state  insurance  fund,  there  is 
more  likelihood  of  his  continuing  as  a  beneficiary  long  after  his  dis- 
ability has  in  reality  ceased,  than  if  he  had  to  deal  with  a  private 
individual. 

As  weighing  against  these  objections  it  is  claimed  that  the  state 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   461 

insurance  system  protects  the  individual  employer  against  the  shock 
orsubstantial  casualty,  and  also  affords  security  to  the  injured  work- 
man against  the  insolvency  of  his  employer.  This,  however,  rests 
upon  the  assumption  that  the  private  employer  will  not  insure  his 
liability  in  casualty  companies  —  an  assumption  which  is  at  variance 
with  the  modern  business  tendency.  It  has  been  suggested,  as  a  means 
of  making  the  direct  liability  law  more  perfect  in  this  respect,  that  the 
law  compel  the  employer  to  transfer  his  liability  to  some  approved 
casualty  company,  but  as  this  would  place  the  employer  at  the  mercy 
of  the  casualty  company  in  the  matter  of  premiums,  it  is  suggested 
that  the  state  also  conduct  an  insurance  fund  to  which  the  employer 
might  transfer  his  liability  upon  payment  of  premiums  fixed  by  the 
state  authorities.  But  this  means  that  the  state  must  engage  in  the 
casualty  business,  and  under  more  difficult  circumstances  than  in  the 
case  of  an  outright  insurance  act ;  for  experience  in  Continental 
countries,  where  that  system  prevails,  shows  that  in  competition 
with  private  companies  these  companies  take  only  the  best  business, 
while*  the  state  gets  all  the  bad  risks. 

Regarding  the  subject  broadly,  it  would  seem  that  the  form  of  legis- 
lation possessing  the  greatest  merit  is  the  exclusive  direct  compulsory 
act  without  any  incidental  insurance  feature.  As  compared  with 
other  methods,  it  is  certainly  the  most  logical  development  of  our 
common  law.  It  possesses  what  the  elective  system  lacks  —  the 
attribute  of  uniformity  —  and,  unlike  state  insurance,  it  preserves  the 
principle  of  individualism  which  underlies  our  institutions. 


Conclusion 

I  have  undertaken  in  this  paper  to  outline  the  development  of  the 
movement  toward  workmen's  compensation  acts,  and  the  reasons  for 
such  legislation,  and  to  discuss  the  more  important  legal  questions 
involved  in  the  compulsory  law.  That  form  of  enactment  is,  in  my 
opinion,  the  only  one  that  will  be  effective,  the  only  one  that  will 
prove  satisfactory,  and  the  one  which  we  must  eventually  adopt  if 
we  are  to  have  any  permanent  legislation  of  this  character.  In  the 
adoption  of  such  a  law  there  is  a  consideration  of  prime  importance 
to  which  I  have  not  alluded,  and  it  is  this :  To  what  extent  can  the 
industrial  concerns  of  a  particular  state  stand  the  added  burden  of 
the  cost  of  compensation,  whether  that  burden  take  the  form  of  in- 
surance premiums  or  otherwise.  At  this  point  we  fmd  the  advocates 
of  state  insurance  claiming  that  because  of  the  economic  waste  in  pri- 
vate insurance  incident  to  commissions,  administration  and  adjustment 
expenses  and  overhead  charges,  the  state  insurance  i)lan  is  the  cheaper. 


462   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

But  I  think  that  if  it  were  to  prove  cheaper,  it  would  only  do  so  in  the 
derogatory  sense  of  being  cheap  and  nasty.  Apart  from  the  laxity 
which  might  attend  the  administration  of  a  state-wide  insurance  fund 
(in  which  the  workmen  themselves  have  no  interest  other  than  the 
obtention  of  relief),  not  to  mention  the  lack  of  inducement  to  the  em- 
ployer under  such  a  system  to  keep  his  operations  up  to  a  high  standard 
of  efficiency  (for  in  private  insurance  the  premium  would  be  adjusted 
to  the  risk  of  the  particular  establishment),  it  is  not  a  sound  principle 
for  a  state  to  embark  in  private  business  ;  and  particularly  is  this  true  of 
a  business  like  insurance,  which  not  only  involves  hazard  and  risk, 
but  is  essentially  conducted  on  these  principles,  and  depends  for  its 
success  upon  a  much  wider  field  of  "averages"  than  is  embraced 
within  state  lines.  As  to  whether  the  elective  system,  with  its  freedom 
of  choice,  is  less  burdensome  in  the  matter  of  the  cost  of  compensation, 
it  may  be  observed  that  in  many  jurisdictions  juries  have  become  im- 
bued with  the  spirit  of  the  times,  and  are  giving  much  higher  verdicts 
than  formerly ;  and  so  under  some  elective  laws  it  is  found  that  the 
cost  of  employers'  liability  is  almost  as  great  as  the  cost  of  compensa- 
tion. 

The  practice  of  other  states  in  the  formulation  of  compensation 
laws  has  been  to  appoint  a  commission,  with  an  adequate  appropria- 
tion, to  conduct  an  exhaustive  examination  of  the  subject.  Much 
general  information,  both  of  a  practical  and  theoretical  nature,  is 
now  available  in  a  convenient  form,  as  a  result  of  investigations  al- 
ready conducted.  The  question,  however,  in  its  particular  applica- 
tion to  local  conditions,  is  by  no  means  clear ;  and  if  Maryland  is  to 
adopt  a  workmen's  compensation  act,  one  of  the  most  important  con- 
siderations should  be  the  probable  effect  that  any  act,  either  as  to  the 
scope  of  the  obligation  or  scale  of  compensation,  would  have  as  an 
additional  tax  on  our  local  industries.  Pending  the  adoption  of  a  real 
compensation  act,  however,  we  may  feel  reasonably  assured  that 
Chapter  837,  of  the  Acts  of  191 2,  will  prove  neither  mischievous  nor 
beneficial. 


REPORT  OF   COMMISSION  ON   EMPLOYERS'   LIABILITY, 

TOGETHER  WITH  THE  EVIDENCE  AND 

TESTIMONY   TAKEN 

REPORT  TO   GOVERNOR 

Many  States  have  passed  employer's  liability  laws,  most  of  them  based 
upon  the  reports  of  investigating  commissions.  The  New  Jersey  com- 
mission's work  is  typical  of  the  better  class  of  these  reports,  and  the  New 
Jersey  law  is,  in  many  respects,  a  model  statute.  —  Editor's  Note. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   463 

State  of  New  Jersey 
Employers'  Liability  Commission 
Office  :  Newark  Board  of  Tr.ade  Room 

January  16,  191 i 

My  Dear  Sir  —  The  Commission  to  inquire  into  the  question  of 
Employers'  Liability,  pursuant  to  Senate  Joint  Resolution  No.  3, 
Laws  of  1 9 10,  reports  as  follows  : 


Public  hearings  have  been  held.  At  these  hearings  employers  and 
representatives  of  labor  presented  their  views  as  set  forth  in  the 
minutes,  a  copy  of  which  is  transmitted  herewith.  While  the  state- 
ments made  at  these  hearings  have  a  certain  value  as  showing  the 
trend  of  public  opinion,  yet,  generally  speaking,  those  advocating 
radical  changes  in  the  present  law  had  little  or  no  appreciation  of  the 
limitations  imposed  on  legislation  by  the  Federal  and  State  Constitu- 
tions. 

The  hearings  have  served  a  useful  purpose  in  acquainting  those 
present  in  a  general  way  with  some  of  the  constitutional  difficulties, 
thereby  making  possible  a  more  intelligent  discussion,  both  among 
employers  and  workmen,  of  the  problems  involved  in  making  changes 
in  the  law. 

The  President  and  Secretary  of  the  Commission  participated  in  a 
conference  of  Commissioners  on  Compensation  for  Industrial  Acci- 
dents from  ten  States,  held  at  Chicago,  November  loth,  nth  and  12th, 
19 10,  at  which  conclusions  were  reached,  as  shown  in  the  attached 
Appendix,  marked  A.  These  conclusions  were  not  unanimous  in 
every  case,  but  fairly  reflected  the  opinion  of  the  majority  of  those 
present. 

At  the  conclusion  of  the  conference  a  committee  was  appointed 
to  draft  two  bills,  one  of  which  was  to  be  a  compulsory  compensation 
act,  based  on  the  assumption  that  such  an  act  would  be  constitutional, 
and  the  other  an  elective  act  based  on  the  assumption  that  the  first- 
named  would  be  unconstitutional.   .   .   . 

The  Commission  has  sent  out  to  certain  members  of  the  bar  a  letter 
reading  as  follows : 

The  Employers'  Liability  Commission  of  New  Jersey,  recently  appointed 
by  Governor  Fort  under  authority  of  a  resolution  of  the  last  Legislature 
has  held  during  the  past  summer  a  series  of  open  meetings,  at  which  a  large 
number  of  employers  and  representative  associations  of  workmen  appeared. 

As  a  result  of  these  meetings  and  from  a  general  study  of  the  working 
of  the  present  system  of  administering  the  law  of  employers'  liability  in  this 
Stale,  the  Commission  is  convinced  that,  speaking  generally,  the  present 
status  of  the  law  is  not  satisfactory  cither  to  the  employer  or  the  employee. 


464   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

While  convinced  that  some  changes  are  desirable,  we  are  duly  impressed 
with  the  fact  that  if  the  work  of  the  Commission  is  to  have  any  practical 
results,  any  modifications  of  the  present  common  or  statute  law  must  be 
in  harmony  with  the  requirements  of  the  Federal  and  State  Constitutions. 
Having  in  view  the  importance  of  the  above  requirement,  the  Commis- 
sion desires  to  ascertain  the  views  of  prominent  members  of  the  bar  of  this 
State  as  to  the  constitutionality  of  certain  suggested  changes.  The  mem- 
bers of  the  Commission  are  serving  without  compensation  ;  the  small  appro- 
priation ($1300)  being  used  exclusively  for  office  and  other  incidental 
expenses.  The  Commission  has  no  express  authority  nor  has  it  means  to 
employ  counsel.  We  therefore  seek  legal  assistance  from  such  public- 
spirited  members  of  the  bar  as  are  willing  to  give  us  the  benefit  of  their 
views  as  a  pubhc  duty. 

The  particular  questions  on  which  we  wish  your  opinion  are  as  follows : 
Are  there  constitutional  objections  to  the  enactment  by  the  Legislature 
of  this  State  of  statutes  to  the  following  effect : 

1.  A  statute  abrogating  as  a  defense  the  doctrine  of  "fellow  servant." 

2.  A  statute  abrogating  as  a  defense  the  doctrine  of  "assumption  of 
risk." 

3.  A  statute  providing  that  contributory  negligence  of  the  employee 
should  not  bar  the  action,  but  that  the  damages  should  be  assessed  by  the 
jury  in  proportion  to  the  comparative  negligence  of  the  parties. 

4.  A  statute  providing  that  the  burden  of  proof  as  to  contributory  neg- 
ligence shall  be  upon  the  employer. 

5.  A  statute  providing  that  no  claim  for  legal  services  or  disbursements 
shall  be  a  lien  upon  the  recovery  or  enforceable  in  law  unless  the  same  be 
taxed  and  approved  by  a  court  of  record. 

6.  A  statute  providing  that  the  employer  shall  be  directly  hable  to 
compensate  the  employee  injured  in  his  employment  (without  regard  to  the 
question  of  neglect  or  failure  of  duty  of  the  employer)  unless  the  injury  was 
intentionally  caused  by  the  employee  himself,  but  also  providing  that  the 
compensation  so  paid  be  fixed  in  amount. 

7.  If  the  answer  to  query  No.  6  is  in  the  negative  —  A  statute  making 
void  any  agreement  to  forego  or  limit  the  liabilitiep  imposed  by  the  statute 
suggested  in  query  No.  6. 

8.  If  the  answer  to  query  No.  6  is  in  the  affirmative,  would  you  consider 
a  permissive  or  elective  act  to  the  same  effect  constitutional  and  desirable? 

g.  A  statute  providing  that  every  employer  and  employee  as  a  part  of 
their  express  or  implied  contract  of  employment  shall  be  presumed  to  have 
accepted  the  provisions  of  the  proposed  workmen's  compensation  act,  un- 
less they  give  written  notice  to  the  contrary  to  some  designated  public 
official. 

10.  A  statute  providing  that  an  employer  who  does  not  accept  the  pro- 
visions of  the  proposed  workmen's  compensation  act  and  forces  his  employee 
to  bring  suit  at  common  law,  shall  not  escape  liability  by  reason  of  (i)  the 
fellow-servant  rule;  (2)  the  rule  of  assumption  of  risk,  or  (3)  the  contribu- 
tory negligence  of  the  employee,  unless  that  contributory  negligence  be 
greater  than  the  negligence  of  the  employer;  burden  of  proof  to  be  on  the 
employer. 

This  statute  would  also  provide  that  an  employee  who  refuses  to  accept 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   465 

the  provisions  of  the  proposed  act,  and  sues  at  common  law,  shall  be  subject 
to  all  three  of  the  defenses  named  as  they  now  stand. 

Aside  from  the  question  of  constitutionality  of  each  of  the  above  sug- 
gested statutes,  we  would  be  glad  to  have  your  opinion  as  to  the  desirability 
in  each  instance  of  making  these  changes  in  the  law  of  the  State,  or  as  to 
any  other  changes  pertinent  to  the  subject. 

They  have  also  sent  to  certain  judges  a  letter  reading  as  follows : 

We  are  addressing  a  letter  to  prominent  members  of  the  bar  of  this 
State,  a  copy  of  which  is  inclosed. 

We  recognize  the  fact  that  in  view  of  your  judicial  office  it  would  be 
improper  to  ask  you  to  give  an  opinion  as  to  the  const itutionahty  of  the 
proposed  legislation.  We  feel,  however,  that  your  experience  at  the  bar 
and  on  the  bench  has  given  you  exceptional  opportunity  to  form  definite 
views  as  to  the  efficiency  of  the  existing  employers'  liability  laws. 

If  you  are  willing  to  express  opinions  as  to  the  practical  merits  of  the 
sugg^tions  contained  in  our  letter  they  will  be  greatly  appreciated. 

The  members  of  the  Commission  are  unanimous  in  their  belief  that 
compensation  to  injured  workmen  is  a  legitimate  charge  against  the 
cost  of  manufacture,  and  that  the  victim  of  an  industrial  accident,  or 
his  dependents,  should  receive  compensation,  not  as  an  act  of  grace 
on  the  part  of  his  employer,  but  as  a  matter  of  justice. 

The  burden  of  industrial  accidents  now  falls  in  the  most  hap- 
hazard and  unscientific  manner  on  the  victim  himself  and  his  de- 
pendents, the  benevolent  employer,  the  sympathetic  fellow  workmen, 
or  the  public  authorities,  or  on  all  of  these. 

We  regret,  however,  that  we  are  forced  to  the  conclusion  that  the 
weight  of  legal  opinions  received  by  correspondence  and  verbally  is 
against  the  constitutionality  of  an  act  which  would  compel  an  em- 
ployer to  compensate  an  injured  employee  without  regard  to  the  fault 
or  negligence  of  the  employer. 

We  are  advised  that,  as  the  law  stands  at  present,  the  employer  is 
held  liable  only  when  the  accident  is  due  to  his  fault  or  neglect.  He 
is  not  liable  —  (c)  when  the  negligence  of  the  employee  contributes  to 
the  accident ;  (b)  when  the  accident  is  due  to  a  natural  risk  of  the  em- 
ployment ;  (c)  or  when  the  accident  is  due  to  the  act  of  a  fellow- 
servant. 

Contributory  Negligence 

As  to  the  first  of  these  defenses  of  the  employer,  i.e.,  the  contributory 
negligence  of  the  employee,  we  believe  that  the  theory  of  this  defense 
is  founded  on  principles  of  justice.  A  change  has  been  suggested  to 
the  so-called  doctrine  of  comparative  negligence  which  involves  on 
the  part  of  the  court  or  jury  a  bahmcing  of  the  relative  amount  of  fault 
or  negligence  as  between  employer  and  employe j. 


466   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

While  this  doctrine  is  theoretically  sound,  we  are  advised  that, 
in  those  States  where  it  has  been  adopted,  in  practice  it  has  resulted  in 
substantially  a  complete  abrogation  of  the  defense  by  the  employer 
of  negligence  by  the  employee.  We  are  unable,  therefore,  to  recom- 
mend the  complete  abrogation  of  this  defense  until  constitutional 
barriers  are  removed  which  now  prevent  the  adoption  of  a  compre- 
hensive scheme  of  compulsory  compensation  which  shall  distribute 
the  burden  of  industrial  accidents  fairly  among  all  employers,  and 
through  them  on  the  purchasers  of  their  products. 

In  order,  however,  to  prevent  the  nonsuiting  of  the  injured  employee 
on  a  mere  technicality,  i.e.,  where  his  negligence  is  relatively  trivial, 
we  recommend  the  modification  of  the  present  law  as  stated  in  our  pro- 
posed bill  requiring  the  proof  of  "willful  negligence."  While,  techni- 
cally, these  words  are  a  contradiction  of  terms,  we  are  advised  that 
they  have  a  well-established  meaning  in  judicial  procedure. 

In  this  connection  the  members  of  the  Commission  desire  to  em- 
phasize the  fact  that  they  are  unanimous  in  their  belief  that  as  a 
practical  question  compensation  to  an  injured  employes  should  be 
based  on  the  fact  of  the  accident  or  injviry  and  not  on  the  cjuestion  of 
fault  or  negligence. 

In  the  elective  section  of  our  proposed  bill  we  therefore  eliminate 
entirely  the  question  of  contributory  negligence. 

As  to  the  second  and  third  of  these  defenses,  i.e.,  "assumption  of 
risk"  and  "fellow- servant,"  we  believe  that,  however  just  these  may 
have  been  at  the  time  of  their  adoption,  they  are  unjust  as  applied  to 
modern  conditions  of  employment  for  the  following  reasons  : 

Assumption  of  Risk 

While,  theoretically,  a  workman  may  be  presumed  to  have  a  choice 
in  the  selection  of  his  employment,  taking  into  account  the  natural 
risks  inherent  therein,  as  a  matter  of  fact  in  the  vast  majority  of 
cases  the  choice  is  narrowed  down  to  the  acceptance  of  such  risks  or 
no  work. 

Fellow-Servant 

In  the  great  majority  of  cases  the  employee  has  no  voice  in  the  selec- 
tion of  his  fellow-servants,  and  the  mere  fact  of  having  the  same  em- 
ployer should  not,  in  itself,  release  the  employer  from  a  liability  which 
he  would  otherwise  incur.  The  injustice  of  this  rule  may  be  illustrated 
thus  :  "  An  accident  occurs,  due  to  the  act  of  an  employee,  which  results 
in  the  injury  of  a  fellow-employee  and  also  of  an  outsider  in  no  way 
connected  with  the  work.  The  outsider  may,  and  often  does,  secure 
redress,  while  the  fellow-employee  is  barred  solely  on  account  of  his 
being  a  fellow-servant." 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   467 

We  therefore  believe  that  the  time  has  come  in  the  development  of 
our  civic  life  for  the  abrogation  of  these  two  defenses,  and  we  have 
incorporated  this  recommendation  in  the  proposed  bill  which  we 
present  herewith.  While,  for  reasons  stated,  we  are  unable  to  recom- 
mend the  passage  of  a  compulsory  compensation  act,  we  recommend  the 
elective  act  which  is  included  in  the  bill.  This  is  done  with  the  ex- 
pectation that  such  an  elective  act  will  be  generally  accepted  by  both 
employers  and  employees  for  the  following  reasons : 

By  the  employer : 

ist.  Because  his  liability  is  limited  and  h'e  is  thus  relieved  of  the  danger 
of  harassing  law  suits  for  excessive  damages. 

2d.  By  reason  of  the  abrogation  of  the  two  defenses  of  "Assumption  of 
Risk"  and  "Fellow-Servant,"  the  position  of  the  employer  who  refuses  to 
accept  the  elective  law  will  be  less  tenable. 

3d.  Because  he  can  in  a  large  measure  add  the  expense  to  cost  of  manu- 
facture and  recover  it  in  his  selling  price. 

4th.   Because  he  can  readily  insure  his  liability. 

By  the  employee  : 

ist.   The  practical  certainty  of  settlement  in  accordance  with  the  schedule 
as  against  the  uncertainty  of  an  appeal  to  common  law  rights. 
2d.    Promptness  in  settlement  as  against  the  "law's  delay." 
3d.   All  of  the  money  is  paid  to  the  injured  person  or  his  dependents  as 
against  the  heavy  attorneys'  fees  and  court  expenses  of  the  suit  at  law. 


CONSTRUCTIVE  INVESTIGATION  AND  THE  INDUSTRIAL 
COMMISSION  OF  WISCONSIN  ^ 

By  John  R.  Commons,  Member  of  the  Wisconsin  Industrial 

Commission 

(From  the  Survey,  January  4,  1913) 

This  article  details  the  experience  of  one  of  the  first  potent  State  indus- 
trial commissions.  —  Editor's  Note. 

Employers  of  Wisconsin  paid  $1,025,000  to  liability  insurance  com- 
panies in  1911 ;  scarcely  $300,000  of  it  reached  the  pockets  of  the 
employees  or  their  dependents.  Ten  thousand  industrial  accidents 
occur  in  Wisconsin  each  year ;  100  of  these  are  fatal ;  the  others  cause 
disability  of  seven  days  or  more.  But  scarcely  10  per  cent  of  the 
injured  received  any  share  of  the  $300,000. 

This  is  the  big  problem  of  the  Industrial  Commission  of  Wisconsin 

>  Reprinted  in  Labor  and  Adnainistration,  by  John  R.  Commons,  The  Macmillan  Co 
(copyrighted). 


468       LABOR  LAWS  AND   THE  LABOR   CONTRACT 

—  to  reduce  the  $1,025,000  paid  by  employers,  to  raise  the  $300,000 
received  by  employees,  and  to  distribute  it  among  10,000  instead  of 
1000  employees.  The  commission  has  a  margin  of  $725,000  to  work 
upon,  and  a  great  margin  of  public  welfare  to  promote.  It  can  reduce 
the  $1,025,000  by  reducing  accidents  and  improving  the  health  of 
employees.  It  can  increase  the  $300,000  and  distribute  it  better  by 
fixing  definitely  the  compensation  for  all  emplo>'ees. 

Instead  of  creating  a  commission  to  administer  the  compensation 
law,  and  then  leaving  the  factory  inspector  to  enforce  the  safety  laws, 
as  other  states  have  done,  the  Wisconsin  legislature  of  191 1  consoli- 
dated the  two  departments  in  a  single  commission.  And  instead  of 
specifying  the  many  details  of  factory  inspection,  the  legislature  boiled 
them  down  into  one  paragraph,  requiring  the  employer  to  protect  the 
life,  safety,  health  and  welfare  of  employees,  and  authorizing  the  com- 
mission to  draw  up  rules  and  orders  specifying  the  details  as  to  how 
it  should  be  done. 

What  the  Commission  Is 

The  commission  is  a  fourth  branch  of  government  combining,  but 
not  usurping,  the  work  of  the  three  other  branches.  It  is  a  legislature 
continually  in  session,  yet  the  power  of  legislation  is  not  delegated. 
It  is  an  executive  sharing  with  the  governor  the  enforcement  of  laws, 
but  also  enforcing  its  own  orders.  It  is  a  court,  deciding  cases  that 
the  judiciary  formerly  decided,  but  not  assuming  the  authority  of  the 
courts. 

This  fourth  function  of  government  is  sometimes  designated  as  the 
administrative  function.  But  administration,  as  usually  understood, 
is  merely  the  details  of  execution.  Administration  and  execution  are 
synonymous.  The  real  distinction  which  entitles  the  commission  to 
its  position  as  a  fourth  branch  of  government,  is  not  administration, 
but  investigation  and  research.  But  its  investigations  are  not  the 
academic  research  of  the  laboratory  and  study,  nor  the  journalistic 
investigation  of  the  agitator,  but  the  constructive  investigation  of  the 
administrator.  It  is  this  constructive  investigation  that  gives  to  the 
commission  its  lawful  position  in  government  and  its  effective  position 
in  the  enforcement  of  law. 

Function  of  Constructive  Investigation 

Constructive  investigation  should  tell  us  whether  the  damage  to  the 
employee  is  public  in  its  nature,  requiring  legislation,  or  only  private, 
requiring  exhortation.  It  should  reveal  the  nature  and  cause  of  the 
injury,  its  cure  and  the  practicability  of  its  prevention.  It  should 
lead  to  such  administration  of  the  law  that  those  enjoined  to  obey  it 
would  respect  and  support  it. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   469 

We  concede  that  in  legislation  and  administration  for  the  protec- 
tion of  health  and  safety  of  employees,  we  are  behind  the  nations  of 
Europe.  This  is  due  partly  to  ignorance  through  lack  of  investigation, 
partly  to  piecemeal  legislation  that  hits  one  evil  at  a  time  when  it 
gets  sufficiently  exposed,  partly  to  the  veto  of  our  courts.  To  those 
who,  perhaps,  look  upon  Americans  as  materialistic,  we  might  protest 
that  we  have  put  into  practice  Plato's  ideal  of  government  by  philoso- 
phers, for  we  have  set  apart  a  faculty  of  sociological  philosophers  in 
each  state  and  the  nation,  who  have  the  last  word  on  our  laws  and 
their  administration.  Their  vetoes  often  expound  the  philosophy 
that  preceded  the  French  Revolution,  numbering  such  sages  as  Gro- 
tius,  Rousseau  and  Montesquieu,  and  such  doctrines  as  the  law  of 
nature,  natural  rights  and  the  general  will.  In  harmony  with  the 
latter,  and  in  conformity  with  constitutions  framed  during  the  vogue 
of  that  philosophy,  they  separate  the  body  politic  into  three  depart- 
ments —  the  legislative,  representing  the  general  will,  the  executive, 
physically  enforcing  it,  and  the  judiciary,  the  intellect  over  all. 

Recently  some  dissatisfaction  has  arisen  over  this  division  of  func- 
tions. It  has  shown  itself  in  threats  to  "recall"  the  judges  or  to 
"recall  their  decisions."  For  some  time,  too,  the  executive  depart- 
ments, from  president  down  to  policeman,  have  not  been  content 
blindly  to  follow  the  legislature  as  the  sole  custodian  of  the  general 
will,  and  have  taken  to  themselves  considerable  discretion  in  enforc- 
ing the  laws.  Citizens,  also,  take  liberties  with  the  general  will, 
trusting  to  slip  through  somewhere  between  the  three  branches  of 
government. 

But  the  courts  have  begun  to  recognize  another  branch  of  govern- 
ment. This  branch  has  come  forth  especially  to  provide  for  that 
extension  of  the  police  power  required  to  meet  the  rapidly  changing 
and  widely  varying  conditions  of  modern  life  and  business.  It,  there- 
fore, combines  to  a  certain  degree,  the  activities  of  legislation,  execu- 
tion and  judgment ;  but  its  peculiar  acti\dty,  which  gives  it  a  separate 
place  as  the  custodian  of  the  police  power  in  the  body  politic,  is  that 
of  investigation.  It  is  upon  the  validity  of  its  investigations  that  it 
is  allowed  to  execute  the  general  will  and  to  survive  the  scrutiny  of 
the  courts. 

The  "Reasonableness"  of  Investigation 

The  doctrine  which  the  court  applies  to  this  function  of  investiga- 
tion is  both  the  noblest  and  the  most  practical  of  legal  doctrines  — 
"reasonableness."  By  this  doctrine  the  court  applies  its  philosophy 
to  the  particular  facts,  but  requires  that  all  of  the  facts  be  taken  into 
account.  The  drastic  program  of  disciplining  the  courts  by  the  recall, 
on  the  ground  that  they  are  removed  from  acquaintance  with  the 


470   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

common  life  and  are  living  in  an  eighteenth  century  philosophy,  might 
be  somewhat  modified  if  advantage  were  taken  of  this  exalted  doctrine. 
It  may  be  that  the  critics  of  the  judiciary  have  not  performed  their 
part  in  bringing  before  the  court  all  of  the  facts  of  the  modern  develop- 
ment of  industry  and  society  which  the  doctrine  of  reasonableness 
requires.  Counsel  often  leaves  the  court  in  the  predicament  of  fall- 
ing back  on  its  own  knowledge  of  what  is  "common  knowledge." 
Often  this  kind  of  knowledge  is  several  years  behind  the  times,  because 
a  serious  injury  to  the  common  good  usually  arises  and  spreads  ex- 
tensively before  the  scientific  experts  and  the  journalistic  agitators 
are  able  to  make  it  a  matter  of  common  knowledge.  The  investiga- 
tive branch  of  government  should  be  the  one  that  furnishes  the  court 
with  judicial  knowledge  of  injury  to  the  public  in  advance  of  common 
knowledge.  Being  also  an  administrative  branch,  it  should  carry 
over  promptly  the  results  of  scientific  investigation  into  their  practical 
application.  Its  function  of  the  police  power  is  the  power  of  reason- 
able regulation  through  constructive  investigation. 

The  legal  doctrine  of  reasonableness  provides  ample  opportunity 
for  protective  legislation  if  once  its  principles  and  procedure  are  com- 
plied with.  It  requires  that  all  of  the  facts  must  be  considered  and 
weighed  "as  may  be  just  and  right  in  each  case."  It  prohibits  class 
legislation  but  permits  classification.  The  one  is  based  on  merely 
private  or  class  benefit,  the  other  on  public  benefit  ascertained  by  in- 
vestigation. While  permitting  reasonable  classification  it  requires 
equal  treatment  of  all  in  the  same  class.  Its  conclusions  must  be 
practicable  under  existing  conditions. 

The  procedure  for  securing  these  standards  are  well  known  to  the 
law.  They  center  on  the  main  requirement  that  all  parties  affected 
shall  have  opportunity  to  be  heard,  and  when  this  is  complied  with, 
the  findings  of  the  properly  constituted  board  or  commission  become 
prima  facie  the  facts  of  the  case  and  the  reasonable  regulation  to  be 
enforced.  Its  findings  are  the  conclusive  results  of  constructive  in- 
vestigation. 

Thus,  in  addition  to  the  legislature  expressing  the  general  will,  the 
judiciary  testing  it  by  its  political  philosophy  of  the  constitution,  and 
the  executive  enforcing  it,  we  have  the  administrati\"e  branch  of  gov- 
ernment investigating  its  application  to  existing  conditions  in  the  light 
of  existing  science  and  practice,  for  the  information  of  all  branches  of 
government. 

The  several  states  and  the  federal  Congress  have  recently  sought 
in  various  fields  to  elevate  this  work  of  investigation  to  the  high 
position  in  our  frame  of  government  that  the  courts  had  assigned  to 
it  in  the  procedure  of  government.  The  legislatures  had  pre\-iously 
from  time  to  time  broken  up  the  executive  department  by  creating 
separate  departments  to  execute  specific  commands  of  the  legislature. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   471 

Usually  a  single  officer  was  placed  at  the  head  of  each  of  these  depart- 
ments, until  a  great  variety  of  minor  executives  had  arisen,  such  as 
the  health  officer,  the  factory  inspector,  the  railroad  commissioner, 
and  so  on. 

At  the  same  time  the  legislature  attempted  to  enumerate  in  detail 
the  things  that  each  officer  should  do  and  each  citizen  obey.  Two 
difficulties  appeared.  The  courts  often  declared  their  elaborate  laws 
unconstitutional,  as  being  unreasonable,  and  the  executives  were  re- 
strained from  dealing  with  any  specific  evil  that  the  legislature  had 
failed  to  enumerate.  These  difficulties  first  appeared  in  the  health 
department,  and  the  legislatures  proceeded  to  change  the  character  of 
that  department  by  creating  a  board  of  physicians,  with  power  to 
issue  orders  based  on  their  expert  knowledge,  and  having  the  force  of 
law,  though  not  enumerated  in  the  law.  Next,  in  the  regulation  of 
railroads,  instead  of  the  detailed  schedules  of  rates  that  characterized 
the  early  granger  laws,  the  legislatures  advanced  to  the  position  which 
culminated  in  the  railroad  and  public  utility  laws  of  Wisconsin,  —  of 
merely  declaring  (what  the  courts  had  already  declared)  that  rates 
and  services  should  be  "reasonable,"  but  creating  a  commission  with 
powers  of  investigation  equal  to  those  of  the  courts,  to  discover  and 
announce  in  each  case  as  it  arose  what  was  the  reasonable  rate  or 
service.  Where  the  investigations  of  the  courts  are  limited  by  the 
technical  rules  of  testimony,  the  commission  can  investigate,  on  its 
own  initiative  and  in  its  own  way,  all  the  circumstances  that  it  con- 
siders relevant.  In  fact,  the  commission  is  made  a  kind  of  standing 
referee  of  the  court,  directed  by  the  legislature  to  report  all  of  the 
facts  that  go  to  determine  what  is  reasonable.  Instead  of  a  referee 
appointed  by  the  court,  usually  a  lawyer  mth  the  lawyer's  limitations 
as  to  the  relative  value  of  different  facts,  the  commission  is  a  body  of 
men  compelled  by  their  duties  to  give  weight  to  social  and  economic 
facts  that  otherwise  do  not  get  before  the  court. 

Extension  of  this  Principle 

Wisconsin  now  has  ventured  to  adopt  this  same  principle  in  matters 
of  labor  legislation.  The  occasion  grew  out  of  the  adoption  of  a  work- 
men's compensation  law,  wherein  it  was  deemed  necessary  to  create 
a  state  Industrial  Accident  Board  with  power  to  decide  all  disputed 
claims  for  compensation.  These  claims,  in  the  Wisconsin  law,  are  not 
specific  amounts  for  enumerated  injuries,  but  are  a  certain  proportion 
of  the  loss  in  wages.  The  accident  board  was  made  the  investigating 
body  to  ascertain  the  actual  loss  in  each  case  where  appeal  was  made, 
and  to  make  an  award  on  that  basis. 

At  the  same  time  it  was  realized  that  compensation  should  not  be 
merely  a  new  kind  of  employer's  liability,  but  should  be  an  additional 


472   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

means  of  preventing  accidents.  Consequently,  the  legislature  pro- 
ceeded to  abolish  the  old  bureau  of  factory  inspection,  as  well  as  the 
industrial  accident  board,  which  it  had  just  created,  and  to  merge 
the  two  into  a  new  administrative  and  investigating  board,  to  be 
known  as  the  Industrial  Commission.  Instead  of  the  long  list  of 
dangerous  points,  such  as  set  screws,  belts,  fire  escapes,  dust,  etc., 
which  successive  legislatures  had  accumulated  during  the  past  thirty 
years,  the  new  law  expresses  the  general  will  in  the  most  general  way, 
as  the  duty  of  the  employer  to  safeguard  the  life,  health,  safety  and 
welfare  of  employees  and  frequenters,  and  the  duty  of  employees  to 
cooperate  with  their  employers. 

The  law  applies  as  broadly  as  possible,  not  to  enumerated  factories, 
shops,  etc.,  but  to  all  "places  of  employment,"  except  agricultural 
and  domestic  employments  not  using  mechanical  power.  In  effect, 
all  physical  property  used  to  furnish  employment  to  labor  is  declared 
to  be  "affected  by  a  public  use,"  and  must  be  so  managed  as  to  pro- 
mote the  public  welfare  in  the  persons  of  those  who  come  within  its 
zone  of  danger. 

The  definition  of  safety  is  not  that  of  the  "ordinary"  safety  of  the 
common  law,  but  "such  freedom  from  danger  to  the  life,  health  or 
safety  of  employees  or  frequenters,  as  the  nature  of  the  employment 
will  reasonably  permit."  The  definition  of  welfare  is  "comfort, 
decency  and  moral  well  being." 

Field  of  the  Commission 

Here,  then,  is  the  field  of  investigation  assigned  to  the  commission. 
It  must  call  to  its  aid  scientific  experts  in  engineering  and  hygiene. 
It  must  ascertain  where  danger  lies  and  where  life,  health,  safety  and 
welfare  are  menaced.  It  must  discover  the  devices,  processes  and 
management  that  will  avoid  these  dangers,  and  must  ascertain 
whether  they  are  practicable.  This  is  the  constructive  investigation 
that  conforms  to  reasonableness.  Once  ascertained  and  published  as 
an  "order"  of  the  commission,  the  conclusions  of  its  investigations 
have  the  force  of  law,  the  will  of  the  legislature  is  executed,  the  phi- 
losophy of  the  court  is  observed. 

As  a  matter  of  economy  to  the  state  and  convenience  to  employers, 
as  well  as  recognition  of  the  wide  scope  of  administrative  investiga- 
tion, all  of  the  departments  dealing  with  employees  and  employment 
were  consolidated  under  the  same  commission.  These  include  the 
state  employment  offices,  the  board  of  arbitration,  child  labor,  street 
trades,  truancy,  women's  hours  of  labor,  apprenticeship,  etc.  In  the 
matter  of  employment  the  commission  is  authorized  to  use  all  of  its 
power  to  eliminate  unemployment,  by  the  establishment  of  free  offices, 
supervision  of  private  agencies,  cooperation  with  agencies  for  voca- 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   473 

tional  and  industrial  education,  etc.  In  the  matter  of  arbitration  it  is 
limited  to  voluntary  conciliation,  with  powers  of  compulsory  investi- 
gation. The  legislature  did  not  go  so  far  as  to  authorize  the  com- 
mission to  investigate  and  determine  reasonable  hours  of  labor  for 
women  and  children,  apart  from  the  rigid  limits  laid  down  in  the  law, 
so  that  the  procedure  described  in  this  article  applies  mainly  to  life, 
health,  safety,  welfare  and  compensation,  with  limited  application  to 
unemployment,  conciliation  and  street  trades. 

In  the  matter  of  organization,  such  a  combination  of  duties  as 
deliberation,  investigation,  hearings,  findings  of  fact,  and  execution 
of  laws,  suggests  a  board  or  commission  of  more  than  one  member, 
acting  jointly,  instead  of  the  single  head  of  an  executive  department. 
Although  each  matter  is  determined  jointly,  yet  each  requires  to  be 
handled  from  the  three  standpoints  of  legality,  investigation  and 
execution.  The  members  cannot  be  experts  in  all  the  technical  fields 
of  engineering,  hygiene,  sanitation  and  so  on,  but  they  certainly  must 
be  capable  of  conducting  investigations  and  determining  their  scope 
and  the  legality  of  their  action,  as  well  as  organizing  and  handling  a 
field  force  of  inspectors  and  deputies.  The  industrial  commission  law 
leaves  to  the  governor  and  senate  a  wide  range  of  selection,  in  that 
the  specific  qualifications  of  commissioners  are  not  prescribed,  but  the 
selections  actually  made  at  the  inauguration  of  the  present  commis- 
sion have  been  made  with  this  threefold  division  of  law,  investigation 
and  execution  in  mind. 

Decisive  Factors  in  Administration 

It  goes  without  saying  that  the  selection  of  commissioners  and  the 
selection  of  subordinates  are  the  two  decisive  factors  that  determine 
the  success  or  failure  of  administration.  Wisconsin  has  had  for  seven 
years  a  Civil  Service  Commission,  and  nearly  all  of  the  employees  of 
the  Industrial  Commission  were  placed  under  the  provisions  of  the 
civil  service  law.  This  has  worked  to  advantage,  although  the  indus- 
trial commission  law  has  required  a  reversal  of  the  original  theory  of 
civil  service  examinations.  Instead  of  classified  positions  and  salaries 
fixed  by  the  legislature,  the  Industrial  Commission  fixes  the  compen- 
sation of  its  employes,  makes  its  own  classification  and  transfers  em- 
ployees from  one  class  to  another.  The  legislature  creates  but  two 
positions,  that  of  "deputies"  and  that  of  clerks.  The  intention  is  to 
substitute  for  the  competition  of  candidates  for  a  job  fixed  by  the 
legislature,  the  opposite  process  of  competing  against  other  employers 
for  the  services  of  employees  fitted  for  positions  which  the  commission 
creates.  The  civil  service  law  is  indispensable,  in  that  it  offers  a 
permanent  tenure  similar  to  that  of  private  employment.  It  obstructs, 
if  conducted  in  such  a  way  that  those  who  are  doing  the  best  work 


474   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

for  private  employers  are  unwilling  to  become  candidates  in  a  formal 
examination  for  a  public  office.  The  Civil  Service  Commission  of 
Wisconsin  adapts  its  examinations  to  these  conditions,  so  that  through 
cooperation  of  the  two  commissions,  the  deputies  of  the  Industrial 
Commission  are  coming  to  have  the  full  confidence  of  employers  and 
employees  as  practical  men. 

This,  it  will  be  seen,  is  essential  in  the  conduct  of  investigations  and 
the  administration  of  orders  that  shall  comply  with  the  doctrine  of 
reasonableness.  WTien  the  commission  began  its  work  of  selecting 
its  staff  it  had  entertained  the  idea  that  it  should  place  at  the  head 
of  its  safety  and  sanitation  work  engineering  and  medical  experts. 
But  after  interviewing  a  number  of  these  experts,  it  was  discovered 
that  they  considered  their  problem  to  be  that  of  drawing  up  ideal  or 
standard  specifications,  which  the  commission  should  then  go  out  with 
a  "big  stick"  and  compel  employers  to  adopt. 

For  two  reasons,  this  was  decided  to  be  impossible.  A  monarchical 
country,  like  Germany,  with  its  executive  independent  of  political 
changes,  might  call  in  its  experts  and  be  governed  by  them,  but  a 
democratic  country  would  not  consent  to  be  ruled  by  those  whose  ideal 
standards  might  be  removed  from  the  everyday  conditions  of  busi- 
ness. This  decision  of  the  commission  also  conforms  to  the  doctrine 
of  reasonableness,  which  requires  practicability  adapted  to  existing 
conditions.  It  was  found  that  most  of  the  successful  work  in  safety 
and  sanitation  during  the  past  ten  years  had  not  been  in  charge  of 
technical  engineers,  but  had  been  in  charge  of  shopmen  or  even  claim 
agents  of  the  corporation;  and  their  success  had  come  about,  not 
mainly  through  their  knowledge  as  mechanical  experts,  but  through 
their  ability  to  get  the  services  of  engineers  and  medical  men  when 
needed,  and  especially  their  ability  to  get  the  cooperation  of  superin- 
tendents, foremen  and  workmen  in  a  united  effort  to  stop  accidents 
and  preserve  health.  In  other  words,  they  were  experts  in  arousing 
the  spirit  of  "safety  first"  and  in  organizing  the  shop  so  as  to  keep 
that  spirit  on  top.  For,  scarcely  a  third  of  the  accidents  can  be  pre- 
vented merely  by  mechanical  safeguards  —  at  least  two-thirds  must 
be  prevented  by  attention,  instruction  and  discipline. 

The  Technical  Expert 

It  is  also  this  spirit  of  safety  among  the  shopmen  that  brings  out 
the  most  effective  safeguards  —  effective  in  the  sense  of  full  protection 
without  interfering  with  output.  The  engineer  can  devise  safeguards 
—  he  needs  the  shopman  to  safeguard  the  output.  The  "safety 
expert "  is  the  one  who  can  bring  these  two  elements  together  and  thus 
work  out  the  practical  rules  for  the  commission  to  adopt.  He  guides 
the  investigators  who  determine  what  is  "reasonable"  both  in   the 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   475 

shop  and  in  court.  It  is  for  this  reason  that  the  Wisconsin  Commis- 
sion has  not  been  able  to  follow  the  remarkable  and  extensive  safe- 
guards devised  and  enforced  in  Germany.  They  seem  to  lack  that 
element  of  practicability,  which  the  shopman,  as  distinguished  from 
the  technical  expert,  insists  upon. 

But  in  the  arrangement  finally  decided  upon,  the  scientist,  the 
engineer,  the  physician,  the  sanitarian,  who  are  the  technical  experts, 
are  called  in  and  utilized,  just  as  they  are  in  private  employment,  when 
their  services  are  needed  and  when  the  practical  men  have  problems 
beyond  their  technical  knowledge.  If,  however,  the  scientists  domi- 
nated the  investigations,  their  results,  however  brilliant  and  conclu- 
sive, might  not  be  reasonable.  Their  investigations  are  indispensable 
and  fundamental,  and  must  be  taken  into  account,  and  should  be 
liberally  provided  for.  But,  unless  they  lead  to  practicability,  which 
only  can  be  supplied  by  the  practical  man,  they  run  the  risk  of  uncon- 
stitutionality. It  is  for  this  reason  that  the  representative  of  the 
Wisconsin  Commission,  at  the  meeting  of  the  section  on  hygiene  of 
occupations  of  the  recent  International  Congress  on  Hygiene  and 
Demography,  resisted  the  proposed  resolution  of  turning  over  all  in- 
vestigations of  industrial  hygiene  to  medical  men.  A  similar  resolu- 
tion had  been  adopted,  naturally  enough,  at  a  previous  session  held 
in  Europe.  The  American  delegates  were  willing  to  accept  the  sub- 
stitute that  investigations  in  physiology  and  pathology  should  be 
intrusted  to  medical  men,  but  this  substitute  was  not  approved  by  the 
permanent  commission.  Constructive  investigation  differs  from 
scientific  investigation  in  that  it  must  be  guided  towards  practical 
ends  under  existing  conditions.  The  distinction  is  vital  in  America, 
if  not  in  Europe,  for  that  which  is  scientific  may  be  unconstitutional, 
because  not  reasonably  practical. 

The  Use  of  Advisors 

But  the  selection  of  a  proper  staff  is  not  enough  to  insure  practi- 
cability. The  Wisconsin  law  authorizes  the  commission  to  appoint 
"advisors"  without  compensation,  to  assist  the  commission  in  any 
of  its  duties.  Acting  on  this  authority  the  commission  invited  the 
Wisconsin  Manufacturers'  Association  and  the  Merchants'  and  Manu- 
facturers' Association  of  Milwaukee  as  well  as  other  associations  of 
special  trades,  such  as  the  master  bakers,  the  woodworkers,  etc.,  to 
name  representatives ;  also  the  State  Federation  of  Labor,  the  em- 
ployers' liability  insurance  companies  and  the  Mutual  Employers' 
Liability  Association  organized  in  Wisconsin  after  the  German  model 
under  the  compensation  law ;  and  in  addition  the  commission  invited 
certain  corporations  which  had  done  the  best  safety  work  in  the  state 
to  permit  theit  safety  e.xperts  to  meet  with  the  committees.     The 


476   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

commission  also  secured  the  assistance  of  physicians  on  special  sub- 
jects, of  the  chief  sanitary  officers  of  the  cities  of  Milwaukee  and 
Chicago,  of  the  State  Board  of  Health  and  the  State  Hygienic  Labora- 
tory, and  representatives  of  the  Consumers'  League  and  the  State 
Federation  of  Women's  Clubs.  These  various  representatives  were 
grouped  into  a  main  Committee  on  Safety  and  Sanitation,  with  sub- 
committees on  boilers,  elevators,  bakeries,  sanitation,  and  so  on,  and 
deputies  of  the  commission  were  assigned  to  work  with  them.  In  this 
way  the  commission  has  had  the  assistance  of  scientific  experts,  of 
representatives  of  the  interests  affected  by  the  orders  to  be  issued, 
representatives  of  the  public  as  consumers,  representatives  of  over- 
lapping agencies  such  as  insurance  companies  and  boards  of  health, 
and  its  own  experts. 

This  has  brought  to  the  commission  the  assistance  of  some  of  the 
leading  men  of  the  state  in  their  several  lines  of  work.  These  men 
have  given  an  astonishing  amount  of  time,  at  their  own  expense, 
which,  if  paid  for  at  commercial  rates,  would  have  required  an  expendi- 
ture far  beyond  the  appropriation  which  the  legislature  allowed  to  the 
commission.  Such  men  have  looked  upon  their  work  not  merely  as 
a  public  service,  but  mainly  as  a  vital  matter  in  the  future  conduct 
of  manufacturing  in  the  state.  The  following  partial  list  of  these 
advisory  committees  indicates  the  wide  range  of  representative  expert 
and  practical  men  to  whom  the  commission  and  the  state  are  indebted 
for  this  fundamental  part  of  its  work : 

Committee  on  Safety  and  Sanitation:  representing  Wisconsin  State 
Federation  of  Labor :  Joseph  Gressler,  machinist,  Milwaukee ;  George 
Krogstad,  pattern  maker,  Milwaukee. 

Representing  Milwaukee  Merchants  &  Manufacturers'  Association : 
Charles  P.  Bossert,  Pfister  &  Vogel  Leather  Company ;  Edward  J.  Kearney, 
Kearney  &  Trecker  Company  (machinery),  chairman  of  committee. 

Representing  Milwaukee  Health  Department :  Joseph  Derfus,  chief 
sanitary  inspector. 

Representing  Wisconsin  Manufacturers'  Association :  Thomas  McNeill, 
Sheboygan  Chair  Company,  Sheboygan ;  H.  W.  Bolens,  Gilson  Manufactur- 
ing Company  (engines),  Port  Washington. 

Representing  Employers'  Mutual  Liability  Company,  Wausau :  W.  C. 
Landon  (lumber),  Wausau. 

Representing  Industrial  Commission  of  Wisconsin :  John  W.  Mapel, 
Pfister  &  \^ogel  Leather  Company ;  Fred  W.  McKee,  Fairbanks-lMorse 
Company  (engines),  Beloit ;  Ira  L.  Lockney,  deputy  to  the  Industrial  Com- 
mission ;  C.  W.  Price,  assistant  to  the  Industrial  Commission  and  secretary 
of  the  committee. 

Sub-committee  on  Elevators :  C.  F.  Ringer,  inspector  of  buildings.  City 
of  Milwaukee ;  Otto  Fischer,  inspector  of  elevators,  City  of  Milwaukee ; 
P.  Jermain,  Otis  Elevator  Company:  F.  A.  Barker,  inspector  of  safety, 
.^tna  Life  Insurance   Company;    G.  N.    Chapman,  inspector   of  safety, 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   477 

Travelers'  Insurance  Company ;  John  Humphrey,  deputy  to  Industrial 
Commission ;    C.  W.  Price,  assistant  to  Industrial  Commission. 

Sub-committee  on  Boilers :  Theodore  \'ilter,  superintendent  Vilter 
Manufacturing  Company  (boilers)  ;  W.  D.  Johnson,  secretary,  Milwaukee 
Boiler  Company;  H.  F.  Bowie,  boiler  inspector,  Hartford  Steam  Boiler 
Insurance  &  Inspection  Company;  J.  Humphrey,  deputy  to  Industrial 
Commission ;  R.  Kunz,  chief  examiner  and  inspector  of  stationary  engines, 
Board  of  Examiners  of  Milwaukee. 

Sub-committee  on  Electricity:  Walter  Nield,  chief  electrician  Ilhnois 
Steel  Company,  Milwaukee;  Charles  Dietz,  chief  electrician,  Common- 
wealth Power  Company,  Milwaukee ;  Thomas  E.  Barnum,  chief  electrician 
of  a  company  making  controlling  apparatus,  and  chairman  of  the  Electric 
Engineers'  Society  of  Milwaukee ;  P.  A.  Schroeder  and  W.  S.  Gute,  State 
Federation  of  Labor. 

Sub-committee  on  Sanitation :  Fred  Swartz,  Pfister  &  Vogel  Leather 
Company,  Milwaukee;  H.  W.  Page,  Sturtevant  Company;  A.  W.  Ruttan, 
Metal  Polishers'  Union,  Milwaukee;  C.  B.  Ball,  chief  sanitary  inspector, 
Board  of  Health,  Chicago. 

Committee  on  Safety  Exhibit :  Walter  GoU,  factory  manager.  Fort 
Wayne  Electric  Works,  Madison  ;  Hobart  S.  Johnson,  vice  president,  Gisholt 
Machine  Company,  Madison;  Frank  C.  Niebuhr,  Carpenters'  Union,  Madi- 
son. 

Committee  on  Bakeries:  Frank  Schiffer,  Association  of  Master  Bakers, 
Milwaukee;  August  Schmitt,  Association  of  Master  Bakers,  Milwaukee; 
M.  H.  Carpenter,  Wisconsin  Association  of  Master  Bakers,  Milwaukee ; 
R.  Colvin,  Wisconsin  Wholesale  Bakers'  Association,  Janesville;  C.  B. 
Ball,  chief  sanitary  inspector.  Board  of  Health,  Chicago ;  C.  J.  Kremer, 
bakery  inspector,  Industrial  Commission. 

These  committees  proceed  to  make  their  investigations,  to  draw  up 
tentative  rules  and  to  submit  them  to  the  commission  for  public  hear- 
ings. After  the  hearings,  the  rules  are  referred  back  to  the  com- 
mittee for  further  investigation,  and  finally,  as  rapidly  as  completed, 
are  issued  by  the  commission  as  "General  Orders"  applying  to  the 
entire  state,  and  are  published  in  the  official  paper. and  in  the  bulle- 
tins of  the  commission. 

The  commission  has  also  been  greatly  aided  by  the  federal  Bureau 
of  Labor,  which  made  investigations  of  laundries  and  pea  canning 
establishments  in  the  state,  availing  itself  of  contemporaneous  inves- 
tigations made  by  the  commission.  The  bureau's  investigation,  of 
course,  had  reference  to  the  adoption  of  rules  that  would  be  applicable 
to  all  the  states.  These  investigations  suggest  an  invaluable  arrange- 
ment that  might  be  made  by  which  the  federal  bureau  could  furnish 
scientific  experts  and  investigators  whose  work  would  be  at  the  dis- 
posal of  the  states.  The  latter  are  not  always  in  position  to  carry 
on  systematically  this  line  of  investigation,  and  if  they  should  do  so 
the  great  object  of  uniformity  throughout  all  the  states  would  not  be 
sufl&ciently  cared  for.     Besides,  the  federal  bureau,  not  being  en- 


478   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

cumbered  with  administrative  duties,  is  in  a  position  to  carry  on 
scientific  investigations,  which  would  be  all  the  more  valuable  when 
directed  towards  the  constructive  needs  of  the  state  departments. 

Educating  the  Bad  Employers 

The  fact  that  both  the  law  and  the  commission  contemplated  the 
cooperation  of  employers  and  employees,  has  resulted  in  a  code  of  rules 
which  are  not  only  reasonable  in  law  but  reasonable  in  the  minds  of 
employers.  It  is  an  application  of  the  well-recognized  principle  of 
political  economy  that  the  competition  of  the  worst  employers  tends 
to  drag  down  the  best  employers  to  their  level.  In  this  case,  how- 
ever, the  corollary  law  is  brought  into  play.  The  most  progressive 
employers  in  the  line  of  safety  and  sanitation  draw  up  the  law,  and 
the  business  of  the  commission  is  to  go  out  and  bring  the  backward 
ones  up  to  their  level.  As  a  matter  of  fact,  it  has  been  found  that  the 
employers  on  the  committees  have  been  more  exacting  in  their  search 
for  the  highest  practicable  standards  than  the  representatives  of  labor 
on  the  committees.  As  a  consecjuence,  the  work  of  the  commission 
in  bringing  other  employers  up  to  their  level  has  been  almost  entirely 
transformed  from  what  they  consider  an  irritating  and  arbitrary  in- 
terference in  their  business,  into  a  work  of  instruction  and  education. 
The  employer  who  resists  the  adoption  of  safeguards  and  processes 
approved  by  his  fellow  employers  is  not  only  unreasonable  in  the 
opinion  of  his  peers,  but  prima  facie  unreasonable  in  court. 

The  work  of  education  which  the  commission  has  naturally  resorted 
to  has  been  that  of  bringing  to  the  attention  of  employers  not  only 
the  rules  but  the  dexdces  and  methods  which  will  comply  with  them. 
A  safety  exhibit,  or  rather  a  triplicate  exhibit,  after  being  passed  upon 
by  an  advisory  committee,  has  been  inaugurated.  It  consists  of 
photographs  and  blue  prints,  and  is  transported  with  the  inspectors 
on  their  rounds  over  the  state.  This  exhibit  is  installed  in  a  public 
place  during  the  period  of  local  inspection,  and  one  of  the  exhibits  is 
kept  permanently  in  the  rooms  of  the  Merchants'  and  Manufacturers' 
Association  of  Milwaukee.  It  is  found  that  these  photographic  ex- 
hibits have  a  certain  advantage  over  the  "museums  of  safety"  of 
European  countries,  where  the  actual  machines  with  safeguards  are 
installed  permanently  in  a  building,  because,  not  only  is  the  expense 
reduced,  but  the  exhibit  can  be  carried  almost  to  the  doors  of  the 
employer  and  his  superintendents,  foremen  and  mechanics.  The 
commissioners  and  their  deputies  usually  arrange  for  an  evening  of 
lectures  in  connection  with  the  exhibit,  when  the  various  laws  are 
explained  and  questions  answered.  These  are  attended  by  represen- 
tatives of  practically  all  the  employing  establishments  in  the  town 
and  surrounding  country.     The  exhibit  itself  is  built  up  and  improved 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   479 

by  photographs  which  the  deputies  take  on  their  rounds,  and  the 
main  object  is  to  arouse  the  "safety  spirit"  and  to  show  how  practi- 
cable it  is  for  establishments  to  devise  and  install  their  own  safeguards 
without  depending  too  much  on  patented  articles. 

The  way  in  which  this  conversion  of  an  executive  department  into 
a  department  of  investigation  and  education  appeals  to  the  employers 
of  the  state,  may  be  judged  by  the  following  extract  from  a  speech 
recently  made  by  George  W.  Bruce,  secretary  of  the  Merchants'  and 
Manufacturers'  Association  of  Milwaukee,  before  the  National  Con- 
gress on  Safety  and  Sanitation,  October  i,  191 2  : 

The  success  which  has  been  attained  in  Wisconsin  on  the  subject  of 
safely  and  sanitation  is  due  not  only  to  a  good  law,  but  also  to  a  wise  ad- 
ministration of  the  same.  The  authorities  approached  their  difficult  task 
in  a  spirit  of  absolute  fairness.  But,  they  did  more.  They  drew  the 
manufacturers  into  their  confidence  and  secured  their  loyal  cooperation  in 
the  administration  of  the  law. 

They  assumed  that  the  manufacturer  is  a  law  abiding  citizen  and  that 
if  he  were  asked  to  give  meaning  and  force  to  the  new  law  he  would  respond. 
The  attitude  which  the  Industrial  Commission  maintained  through  the 
introductory  period  of  their  exacting  and  herculean  task  was  bound  to  be 
followed  by  success. 

But,  the  commission  practiced  wisdom  also  in  bringing  to  its  work 
experts  of  character  and  efficiency.  Favoritism  was  cast  to  the  winds. 
The  men  best  fitted  for  the  task  were  selected. 

Men  like  Mr.  Crownhart  and  Mr.  Beck  of  the  commission  realized  that 
an  antagonistic  or  arbitrary  spirit  would  be  resented  and  cause  difiiculty. 
They  were  tactful  and  discreet,  but  made  it  absolutely  plain  that  both  the 
spirit  and  the  letter  of  the  law  must  be  carried  out.  Would  the  manu- 
facturer lend  his  cooperation?     And  he  did. 

]\Ien  like  Price,  capable  and  judicious,  formerly  at  the  head  of  similar 
work  with  the  International  Harvester  Company,  were  chosen  to  perform 
the  delicate  and  difficult  task  of  working  out,  together  with  the  manu- 
facturer, a  reasonable  and  workable  p;-ogram. 

They  not  only  succeeded  in  creating  a  cooperative  attitude  on  the  part 
of  the  manufacturer,  but  they  also  secured  much  valuable  time  and  effort 
at  the  hands  of  some  of  the  most  important  manu.facturers  in  the  state. 

Thus,  I  am  safe  in  saying  the  work  of  industrial  safety  and  sanitation  in 
Wisconsin  which  is  progressing  in  a  most  successful  manner,  has  the  good 
will  and  support  of  the  manufacturing  interests  of  the  state. 

Legal  Effect  of  Commission's  Orders 

The  legal  effect  of  the  commission's  orders  turns  upon  the  consti- 
tutional position  which  belongs  to  constructive  investigation.  These 
orders  are  not  a  delegation  of  legislative  power,  but  an  investigation 
and  publication  of  facts.  The  courts  have  long  held  that  the  legisla- 
ture may  determine  that  a  given  law  shall  go  into  effect  at  a  future 


48o   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

date  on  the  occurrence  of  a  specified  event.  The  law  in  this  case  is 
the  obligation  placed  on  employers  to  protect  the  life,  health,  safety 
and  welfare  of  employees.  The  future  occurrence  when  it  takes  effect 
is  thirty  days  after  official  publication  of  the  findings  of  the  commission. 

Neither  are  the  commission's  investigations  and  findings  a  usur- 
pation of  the  authority  of  the  courts.  This  is  cared  for  by  the  pro- 
cedure. Formerly  a  factory  inspector  issued  orders  on  the  spot,  and 
prosecuted  for  disobedience  in  the  trial  courts.  The  court  was  at 
liberty  to  raise  the  question  whether  the  order  was  necessary,  or 
whether  too  expensive  or  confiscatory,  or  whether  the  manufacturer 
was  not  as  competent  as  the  inspector  to  determine  the  effectiveness 
of  his  safeguards.  Now  these  questions  of  reasonableness  cannot  be 
raised  in  the  trial  court.  Only  the  fact  of  compliance  or  non-com- 
pliance can  be  raised.  If  the  question  of  reasonableness  is  raised  it 
must  come  up  in  an  action  against  the  commission  in  the  county  court 
at  the  state  capital,  and  thence  in  the  Supreme  Court  of  the  state. 
Furthermore,  if  the  petitioner  introduces  evidence  which  was  not 
before  the  commission,  the  case  must  be  remanded  back  to  the  com- 
mission with  the  new  evidence,  and  the  commission  must  be  given 
opportunity  to  change  its  order  if  it  so  determines.  The  case  can 
then  go  back  to  the  court. 

In  this  way,  the  commission's  complete  power  of  investigation  is 
protected,  its  orders  are  made  prima  facie  reasonable,  and  the  burden 
is  on  the  petitioner  to  break  them  down  in  court.  The  court  retains 
all  of  its  powers  of  investigation  and  philosophy,  as  far  as  it  chooses  to 
use  them.  But  the  commission's  investigations  are  not  limited  by  the 
strict  rules  of  evidence  prevailing  in  court.  It  can  consider  all  of  the 
facts  without  objection.  It  can  initiate  investigations.  It  is,  in  fact, 
a  body  of  social  and  economic  investigators,  rather  than  a  tribunal 
restricted  to  technical  rules  of  evidence.  The  Supreme  Court  of  the 
state  has  sustained  the  commission,  so  far  as  it  affects  procedure  under 
the  compensation  law.  The  procedure  respecting  safety  and  health 
is  similar,  but  has  not  as  yet  been  passed  upon,  although  in  the  case 
of  the  Railroad  Commission,  with  similar  procedure  respecting  reason- 
able rates  and  services,  its  findings  of  fact  have  been  held  to  be  con- 
clusive. 

Commission  an  Administrative  Court 

The  Industrial  Commission  is  also  made  an  appellate  administra- 
tive court  in  all  cases  of  local  boards  of  health,  common  councils  or 
other  local  bodies  that  issue  orders  on  places  of  employment.  Their 
authority  to  issue  such  orders  has  not  been  infringed  upon,  but  they 
are  protected  against  court  injunctions  by  the  requirement  that  appeal 
shall  first  be  made  to  the  Industrial  Commission.  The  latter,  on 
investigation,  may  affirm  the  local  order,  or  may  substitute  a  "reason- 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   481 

able  one,"  and  the  petitioner  must  then  proceed  against  the  com- 
mission as  above  explained,  in  place  of  the  local  authority.  The 
commission  has  endeavored  to  bring  about  agreement  with  local 
boards  by  securing  their  representatives  on  the  advisory  committees 
and  it  is  expected  in  this  way  that  state  and  local  inspectors  will 
not  issue  conflicting  orders  on  employers. 

Advisory  committees  of  employers  and  employees  have  also  been 
enlisted  in  the  administration  of  the  free  employment  offices.  The 
Milwaukee  committee  consists  of  representatives  of  the  manufacturers' 
association  and  representatives  of  the  trade-unions.  They  assist  the 
Civil  Service  Commission  in  the  examination  of  applicants,  and  have 
thus  overcome  the  two  greatest  obstacles  in  the  way  of  successful 
operation  of  such  offices  by  the  state  —  politics  and  trade-unions. 
The  superintendents  and  assistants  of  these  offices  are  not  only  re- 
moved from  political  influence  but  are  removed  from  all  suspicion  of 
using  their  position  for  or  against  employer  or  employee  in  the  case  of 
strikes.  The  growth  of  business  transacted  by  the  Milwaukee  office 
has  been  phenomenal  during  the  first  year  of  this  method  of  manage- 
ment, and  its  transformation  from  a  mere  charitable  agency  to  find 
work  for  unemployables,  into  a  labor  exchange  bringing  employer  and 
employee  together,  is  evidenced  by  the  following  statement  made  by 
the  chairman  of  the  committee  and  representative  of  the  employers, 
A.  T.  VanScoy  of  the  International  Harvester  Company : 

I  was  not  particularly  enthusiastic  at  first  over  this  movement,  but  have 
changed  my  views  in  regard  to  it,  and  believe  it  has  been  of  great  benefit 
to  the  working  people  in  that  it  has,  through  what  might  be  called  a  clearing 
house,  enabled  them  to  obtain  employment  quickly  and  without  expense, 
and  it  has  also  been  equally  valuable  to  the  employer,  in  that  it  has  enabled 
him  through  this  employment  bureau  or  clearing  house  to  obtain,  usually 
without  efTort  on  his  part  other  than  telephoning  his  wants,  the  help  desired. 
Its  work  is  broadening  all  the  time,  employers  learning  that  an  effort  is 
made,  and  generally  successfully,  to  furnish  them  with  the  kind  of  help 
desired,  instead  of  sending  men  promiscuously,  and  employees  learning  that 
the  quickest  and  most  expeditious  way  for  them  to  obtain  employment  is 
through  the  bureau. 

The  opinion  of  the  trade-unions  is  represented  by  the  following 
statement  of  the  representative  of  the  Federated  Trades  Council : 

Without  blare  of  trumpets  the  free  state  employment  office  in  Mil- 
waukee is  doing  one  of  the  best  works  at  present  going  on  in  the  city.  It 
is  supplying  a  head  center  where  men  needing  work  may  go  and  where  work 
seeking  men  may  also  apply.  Its  offices  on  Fourth  Street,  just  north  of 
Grand  Avenue,  always  present  a  busy  scene.  .  .  .  While  the  work  of  such 
offices  seems  local,  the  unemployed  problem  is  a  state-wide  problem  and 
even  more,  and  can  best  be  met  and  handled  as  it  is  now  being  handled 
under  the  Industrial  Commission  with  cooperating  offices  in  the  principal 


482   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

cities  of  the  state.  One  praiseworthy  thing  that  the  free  employment  office 
has  done  must  not  be  overlooked.  It  has  cut  down  the  crowds  of  hundreds 
of  work-hungry  men  at  the  factory  gates  mornings.  This  sort  of  a  scramble, 
often  by  men  almost  despairing,  with  families  waiting  to  learn  of  the  success 
or  failure  of  the  quest,  is  not  only  a  pathetic  sight,  but  often  downright 
tragedy.  The  free  employment  office  provides  th&  better  way,  and  the 
manufacturers  themselves  have  come  to  realize  it.  It  is  certainly  more 
humane  for  the  men,  saves  them  a  lot  of  tramping,  and  is  a  great  con- 
venience in  the  securing  of  workmen.  Nay,  more,  it  saves  his  feeHngs,  for 
it  is  found  that  the  rebuffs  that  he  gets  at  factory  gates  have  a  souring  effect 
on  a  man  in  spite  of  himself. 

A  peculiar  use  of  advisory  committees  has  been  undertaken  in  the 
administration  of  the  street  trades  law  in  Milwaukee.  The  law  is 
supplementary  to  the  child  labor  law  in  that  the  children  concerned 
are  mainly  not  employees  but  are  merchants,  and  therefore  without 
employers  who  can  be  held  liable  for  violation  of  the  child  labor  and 
truancy  laws.  The  newsboys,  numbering  about  4000,  have  been 
organized  in  the  "Newsboys'  Republic"  for  the  purpose  of  enforcing 
the  law.  The  Republic  itself,  including  certain  adults  chosen  jointly 
by  the  boys  and  the  commission,  constitutes  a  lively  advisory  com- 
mittee to  the  commission.  The  plan  is  only  now  in  process  of  instal- 
lation, after  careful  investigation  had  been  made  of  the  administration 
of  similar  laws,  and  especially  of  the  similar  organization  in  Boston. 

In  the  administration  of  the  new  apprenticeship  law,  supplementing 
the  industrial  education  law,  the  commission  is  aided  by  a  committee 
of  the  Manufacturers'  Association. 

Service  of  Advisory  Committees 

Wherever  practicable,  the  commission  has  found  that  these  ad- 
visory committees  are  invaluable  in  the  enforcement  of  laws  under  its 
charge.  They  are  being  extended  wherever  it  is  found  that  the  com- 
mission needs  the  cooperation  of  the  classes  affected  by  the  adminis- 
tration of  the  law  or  their  judgment  upon  the  reasonableness  of  its 
orders.  It  will  be  seen,  too,  that  this  practice  meets  the  political 
objection  against  the  multiplication  of  commissions  and  "government 
by  commissions."  The  Industrial  Commission  consolidates  what 
otherwise  might  be  three  or  four  commissions  and  executives,  thus 
reducing  the  expense.  It  does  not  remove  government  "from  the 
people"  and  place  it  in  the  hands  of  "experts,"  for  it  necessarily  arid 
actually,  both  in  full  compliance  with  the  doctrine  of  reasonableness 
and  in  securing  full  cooperation  of  the  public  in  understanding  and 
enforcing  the  laws,  brings  the  government  directly  into  the  hands  of 
the  people.  It  is  certain  that  the  state  must  have  executives  in  order 
to  enforce  the  labor  laws,  as  well  as  other  laws.     To  object  to  them  is 


LABOR  LAWS  AND   THE   LABOR   CONTRACT       483 

like  urging  your  son  to  learn  to  swim  but  forbidding  him  to  go  near 
the  water.  The  real  question  is  not  how  to  avoid  commissions,  but 
how  to  organize  them,  how  to  do  away  with  overlapping  commissions, 
how  to  make  them  efficient  and  economical,  how  to  keep  them  near 
to  the  actual  life  of  the  people,  in  short,  how  to  make  them  the  branch 
that  fills  the  gap  of  constructive  investigation  in  our  scheme  of  govern- 
ment. 

It  has  been  suggested  by  inquirers  from  other  states,  and  it  might 
be  inferred  from  the  emphasis  here  laid  on  investigation,  that  the 
executive  part  of  the  commission's  work  should  be  kept  separate  with 
a  single  head,  as  it  has  been  in  the  past,  in  order  to  center  responsi- 
bility for  the  enforcement  of  laws.  In  that  case  a  board  of  experts 
might  be  created  for  the  purpose  of  investigating  and  drafting  the 
rules,  which  the  independent  executive  would  be  required  to  enforce. 
For  several  reasons,  this  separation  of  departments  would  probably 
be  impracticable.  The  most  valuable  agents  for  the  kind  of  investi- 
gation required  are  the  inspectors,  whose  duty  it  is  to  enforce  the  rules. 
By  associating  them  -with  the  advisory  committees,  they  enter  into 
the  spirit  of  cooperation,  they  learn  the  principle  of  reasonableness, 
and  they  acquire  the  \drtue  of  tact.  If  they  have  no  knowledge  of  the 
reasons  for  the  rules,  and  therefore  no  particular  interest  in  bringing 
about  their  enforcement  through  patient  instruction  of  employers  and 
superintendents,  their  attitude  is  likely  to  be  that  of  the  typical  fac- 
tory inspector  who  says  to  the  employer,  "Well,  I  didn't  make  the 
law  —  there  it  is,  and  you've  got  to  obey  it."  Instead  of  inspiring 
the  "safety  spirit"  throughout  the  state,  they  stir  up  needless  opposi- 
tion and  friction  between  the  factory  inspector  and  the  board  of 
experts. 

Furthermore,  no  system  of  general  rules  laid  down  in  advance  can 
anticipate  all  of  the  special  conditions  or  obstacles  in  the  way  of  en- 
forcement. The  Wisconsin  law  cares  for  this  by  means  of  "special 
orders  "  in  addition  to  "general  orders."  But  these  special  orders  can 
only  be  issued  on  investigation  and  public  hearing,  precisely  the  same 
as  the  general  orders.  The  inspector,  therefore,  instead  of  insisting 
upon  something  impracticable,  can  join  with  the  employer  in  asking 
for  a  special  order  before  proceeding  to  prosecution.  If  the  inspector 
is  subject  to  an  independent  executive,  desirous  of  making  a  reputa- 
tion for  the  enforcement  of  law,  not  only  is  he  tempted  to  discredit 
the  work  of  the  expert  commission,  but  he  is  under  no  obligation  to 
join  with  the  commission  in  perfecting  its  orders  so  as  to  conform  to 
the  rule  of  reasonableness.  The  deputies  of  the  Industrial  Commission 
are  continually  reporting  omitted  points  or  impracticable  applications, 
and  the  execution  of  the  law  becomes  a  continuous  investigation  and 
progress  towards  reasonableness.  With  separate  departments  for  in- 
vestigation and  execution,  the  investigations  would  doubtless  fall 


484      LABOR  LAWS  AND  THE  LABOR  CONTRACT 

into  the  hands  of  experts  not  familiar  with  the  great  variety  of  con- 
ditions to  be  met,  and  the  execution  would  be  that  perfunctory  and 
blind  enforcement  which  has  already  brought  discredit  on  much  of 
the  American  factory  inspection. 

Finally,  the  commissioners  themselves  cannot  divide  their  work 
into  the  separate  fields  of  law,  investigation  and. execution,  especially 
where,  as  with  the  Wisconsin  commission,  such  a  wide  range  as  four- 
teen departments  are  brought  together  under  one  head.  Each  com- 
missioner must  take  his  share  in  the  executive  work  of  different 
departments,  and  each  must  carry  on  continually  the  constructive  in- 
vestigation that  the  law  implies.  It  is  only  by  this  means  of  adminis- 
tration and  investigation  combined  in  a  single  commission  that  friction 
and  antagonism  between  overlapping  officials  can  be  avoided,  coopera- 
tion with  employers  and  employees  secured,  and  obedience  to  the 
authority  of  the  judiciary  observed. 

Distinction  between  Industrial  and  Railroad  Commissions 

While  the  Industrial  Commission  is  modeled  after  the  law  creating 
the  Railroad  Commission,  its  field  is  widely  different.  The  Railroad 
Commission  regulates  monopoly  —  the  Industrial  Commission  regu- 
lates competition.  It  endeavors  to  enforce  "reasonable"  competition 
in  so  far  as  dealings  with  employers  are  concerned,  by  raising  the 
level  of  labor  competition.  The  distinction  offers  a  practicable  sug- 
gestion for  the  creation  of  a  commission  by  the  federal  government 
for  the  regulation  of  "trusts."  Such  a  commission  need  not  have  the 
power  to  regulate  prices,  as  the  Railroad  Commission  does,  on  the 
theory  that  monopoly  is  inevitable,  nor  to  give  special  privileges  to 
so-called  "good"  trusts  that  accept  federal  incorporation  or  federal 
license,  and  agree  to  abide  by  the  commission's  orders.  Rather 
should  a  federal  commission  be  a  "free  trade"  commission,  controlling 
all  interstate  trade  so  far  as  necessary,  for  the  purpose  of  investigating 
and  prohibiting  all  kinds  of  "unfair  competition."  It  would  take 
the  place  which  the  federal  courts  now  assume,  of  dissolving  and  regu- 
lating corporations.  But  instead  of  committing  this  power  to  lawyers 
it  would  be  committed  to  a  body  of  men  representing  the  every-day  life 
of  all  the  people,  equipped  to  conduct  constructive  investigations,  to 
prosecute  for  violations  of  the  anti-trust  laws,  to  prescribe  and  en- 
force rules  of  reasonable  competition  and  so  to  raise  the  level  of  busi- 
ness competition. 


LABOR  LAWS  AND   THE  LABOR   CONTRACT       485 

JUDICIAL   REASONS   FOR  ILLEGALITY  OF   BOYCOTTS 
By  Harry  W.  Laidler 

(Chapter  XII,  "Boycotts  and  the  Labor  Struggle,"  John  Lane  Company, 
New  York.     Copyrighted.) 

While  the  primary  boycott  has  secured  the  sanction  of  most  courts, 
secondary  and  compound  boycotts  have  been  vigorously  condemned 
by  the  majority.  The  legal  reasoning  is  often  not  well  defined,  and 
in  many  instances,  is  obscured  by  legal  verbiage  which,  to  the  lay- 
man, often  seems  unnecessary  and  confusing. 

Generally  boycotting  has  been  considered  an  outlawed  weapon  on 
the  ground  that  it  constituted  a  common  law  conspiracy.  A  con- 
spiracy has  been  defined  as  a  combination  of  two  or  more  organized 
to  accomplish  an  illegal  end,  or  a  legal  end  by  illegal  means. 

Some  courts  have  decided  that  the  boycott  is  reprehensible  because 
the  means  employed  are  illegal.  The  former  position  has  generally 
been  taken  toward  the  secondary  boycott ;  the  latter,  toward  the 
compound  boycott.  The  judges  holding  that  the  object  of  the  boycott 
is  illegal,  declare  that  it  proposes  to  do  one  of  the  following  things, 
each  of  which  is  illegal : 

To  injure  another  in  his  trade,  business  or  property. 
To  restrain  or  block  the  avenues  of  trade  or  commerce. 
To  induce  another  to  break  his  contract. 

Others  admit  that  the  ultimate  object  of  the  boycott,  that  of  im- 
proving the  condition  of  labor,  might  be  a  legal  one,  but  declare  that 
its  immediate  object  is  that  of  injury,  and  that  the  law  can  take  cog- 
nizance only  of  this  immediate  object.  Still  other  judges  in  this  group 
pronounce  the  boycott  illegal,  not  merely  on  the  ground  of  injury, 
but  because  such  injury  is  accompanied  by  malice  or  is  without 
justifiable  cause. 

The  second  general  class  of  judges  emphasizes  the  illegal  means 
employed  —  threats,  coercion,  intimidation,  violence,  extortion,  mis- 
representation —  and  proclaims  the  boycott's  illegality  because  of 
the  employment  of  one  or  more  of  these  means.  The  question  of 
whether  a  suppression  of  boycotts  interferes  with  freedom  of  speech 
and  of  the  press  has  brought  forward  special  arguments.  Let  us 
analyze  more  closely  the  reasoning  of  the  court. 

The  Law  of  Combination 

Ignoring  the  charge  that  boycotting  constitutes  a  nuisance,  we 
find  that  the  early  courts  were  prone  to  argue  that  all  combinations 


486   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

formed  to  injure  the  business  or  property  of  another,  to  obstruct  or 
interfere  with  another  in  the  conduct  of  his  lawful  trade  or  employ- 
ment, to  induce  another  to  break  his  contracts,  or  to  block  the  avenues 
of  trade  and  commerce  had  an  tnilawfid  end  in  vieiv,  and  should  there- 
fore be  condemned  as  conspiracies.  The  judges  admitted  that  each 
man  individually  had  a  right  to  refuse  to  deal  with  another,  but  con- 
tended that  an  agreement  "with  others  so  to  refuse  introduced  an  illegal 
element.  In  justifying  this  contention  they  argued  that  a  combina- 
tion of  two  or  more  greatly  increased  the  power  for  evil  and  often 
rendered  the  members  of  the  combination  subject  to  the  arbitrary 
and  malicious  action  of  the  majority  thereof.  Judge  Harlan  thus 
states  the  distinction : 

It  is  one  thing  for  a  single  individual  or  for  several  individuals,  each  act- 
ing on  his  own  responsibility  and  not  in  cooperation  with  others,  to  form  the 
purpose  of  inflicting  actual  injury  upon  the  property  or  rights  of  others. 
It  is  quite  a  different  thing  in  the  eye  of  the  law  for  many  persons  to  com- 
bine or  conspire  together  with  the  intent  not  simply  of  asserting  their  rights 
or  of  accomplishing  lawful  ends  by  peaceable  methods,  but  of  employing 
their  united  energies  to  injure  others  or  the  public.  An  intent  on  the  part 
of  a  single  person  to  injure  the  rights  of  others  or  of  the  public  is  not  in 
itself  a  wrong  of  v»'hich  the  law  will  take  cognizance  unless  some  injurious 
act  be  done  in  execution  of  the  lawful  intent.  But  a  combination  of  two  or 
more  persons  with  such  intent,  and  under  circumstances  that  give  them,  when 
so  combined,  a  power  to  do  an  injury  they  would  not  possess  as  individuals 
acting  singly  has  always  been  recognized  as  in  itself  wrongful  and  Ulegal.^ 

Ex-President  Taft,  then  Judge  Taft,  argued  in  a  like  vein : 

A  combination  may  make  oppressive  or  dangerous  that  which,  if  proceed- 
ing from  a  single  person,  would  be  otherwise,  and  the  very  fact  of  the  com- 
bination may  sliow  that  the  object  is  simply  to  do  harm,  and  not  to  exercise 
one's  own  justifiable  rights.- 

Judge  Carpenter,  the  first  judge  of  a  court  of  last  resort  declaring 
a  boycott  in  America  illegal,  contended  that  separately  men  were 
powerless,  but  combined,  formidable. 

The  supposed  surrender  of  the  discretion  of  each  indi\ddual  to  the 
direction  of  the  combination  is  thought  by  Vice  Chancellor  Green  to 
be  the  chief  e\dl  of  combination.     He  declared: 

The  whole  strength  of  which  (the  combination)  lies  in  the  fact  that  each 
individual  has  surrendered  his  own  discretion  and  will  to  the  direction  of 
the  accredited  representatives  of  all  the  organizations.  He  no  longer  uses 
his  own  judgment,  but  by  entering  the  combination  agrees  to  be  bound  by 
its  decree.     A  member  asserts  his  independence  of  judgment  and  action  at 

1  Arthur  vs.  Oakes,  U.  S.  Circ.  Ct.  of  Ap.,  i8g4,  63  Fed.  310,  321,  322.  Italics  are  the 
author's. 

2  Moores  vs.  Bricklayers,  OhiOj'iSgo.     Italics  are  the  author's. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   487 

risk  of  all  association  with  fellow  members.  They  will  not  eat,  drink,  live 
or  work  in  his  company.  Branded  by  the  peculiarly  offensive  epithets 
adopted,  he  must  exist  ostracised,  socially,  and  industrially,  so  far  as  his 
former  associations  are  concerned. ^ 

Malicious  and  arbitrary  actions  are  more  likely  to  be  found  in  com- 
binations, contends  Judge  Robb  in  the  Buck's  Stove  case : 

The  loss  of  trade  of  a  single  individual  ordinarily  affects  a  given  dealer 
very  Httle.  Being  discriminating,  the  purchasing  pubHc,  if  left  free  to 
exercise  its  own  judgment,  will  not  act  arbitrarily  or  maliciously,  but  will 
be  controlled  by  natural  considerations.  But  a  powerful  combination  to 
boycott  immediately  deflects  the  natural  course  of  trade,  and  ruin  follows 
in  its  wake  because  of  the  unlawful  design  of  the  conspirators  to  coerce  or 
destroy  the  object  of  their  displeasure.  In  other  words,  it  is  the  conspiracy, 
and  not  the  natural  causes,  which  is  responsible  for  the  result.  From  time 
immemorial  the  law  has  frowned  upon  combinations  formed  for  the  purpose 
of  doing  harm.^ 

"A  grain  of  gunpowder  is  harmless,"  observed  Lord  Brampton,  in 
Quinn  vs.  Leathern  (1901),  an  English  case,  "but  a  pound  may  be 
highly  destructive." 

In  attempting  in  a  somewhat  scientific  manner  to  describe  the  dif- 
ference between  the  acts  of  the  combination  and  of  the  individual, 
Mr.  Justice  Gibson,  nearly  a  century  ago,  said : 

There  is  between  the  different  parts  of  the  body  politic  reciprocity  of 
action  on  each  other,  which,  like  the  action  of  antagonistic  muscles  in  the 
natural  body,  not  only  prescribes  to  each  other  its  appropriate  state  and 
condition,  but  regulates  the  motion  of  the  whole.  The  efforts  of  an  in- 
dividual to  disturb  this  equihbrium  can  never  be  perceptible,  nor  carry  the 
operation  of  his  interest  on  that  or  any  other  individual,  beyond  the  limits 
of  fair  competition.  But  the  increase  of  power  of  combination  means,  being 
in  geometrical  proportion  to  the  numbers  concerned,  an  association  may  be 
able  to  give  an  impulse  not  only  oppressive  to  individuals  but  mischievous 
to  the  public  at  large  ;  and  it  is  the  employment  of  an  instrument  so  power- 
ful and  dangerous  that  gives  criminaUty  to  an  act  which  would  be  per- 
fectly innocent,  at  least,  in  a  legal  view,  when  done  by  an  individual.^ 

The  Boycott  and  Illegal  Ends 

Injury  to  the  property  or  business  of  another,  interference  with 
the  lawful  conduct  of  business  and  the  free  employment  of  one's 
capital  and  labor  power,  and  undue  restraint  of  trade  are  among  the 
so-called  illegal  ends  of  a  combination  which  have  warranted  the  con- 

1  Barr  vs.  Essex,  Conn.,  i8g4,  30  Atl.  8S1,  88q. 

2  A.  F.  of  L.  vs.  Buck's  Stove  and  Range  Co.,  Ct.  of  Ap.,  D.  of  C,  igog,  $$  App.  Cases, 
D.  of  C.  83,  107. 

'Commonwealth  vs.  Carlisle,  Pa.,  1821. 


488   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

demning  of  boycotts.  These  ends  are  condemned  by  some  judges 
only  when  malice  or  coercive  measures  accompany  them. 

"If  it  (the  boycott)  means,  as  some  high  in  the  confidence  of  the 
trade  unions  assert,  absolute  ruin  to  the  business  of  the  person  boy- 
cotted unless  he  yields,"  states  Judge  Carpenter  in  the  first  of  the 
boycott  cases,  "then  it  is  criminal."  ^ 

"All  the  authorities  hold  that  a  combination  to  injure  or  destroy 
the  trade  or  business  of  another  by  threatening  to  produce  injury  to 
the  trade,  business  or  occupation  of  those  who  have  business  relations 
with  him  is  an  unlawful  conspiracy,"  is  the  principle  laid  down  in  a 
recent  Missouri  case.^ 

Whether  or  not  the  business  or  the  good  will  of  one  can  reasonably 
be  called  a  property  right,  and  consequently  whether  the  concerted 
agreement  to  discontinue  such  business  relations  and  to  induce  others 
so  to  do  may  be  considered  an  injury  to  such  right,  has  been  the  bone 
of  contention  in  a  number  of  cases.  Judge  Wright  in  the  Buck's 
Stove  case  contends  that  it  is  such  a  right. ^ 

A  business,  be  it  mercantile,  manufacturing  or  other,  which  has,  for  a 
long  time,  been  successfully  operated  and  developed,  possesses  a  greater 
value  than  a  like  business  newly  launched,  although  the  latter  be  exactly 
equivalent  in  respect  to  stock,  equipment,  money  and  all  other  physical 
possessions;  the  basis  of  the  excess  in  value  of  the  one  over  the  other  is 
termed  the  "good  will";  it  is  the  advantage  which  exists  in  established 
trade  relations  with  not  only  habitual  customers,  but  with  the  trading 
public  generally ;  the  advantage  of  an  established  pubHc  repute  for  punc- 
tuality in  deahng,  or  superior  excellence  in  goods  or  product ;  finally,  in 
last  analysis,  a  good  will,  when  it  exists,  is  one's  return  for  the  expenditure 
of  time,  money,  energy  and  effort  in  development ;  it  is  a  thing  of  value  in 
the  sense  that  it  is  a  subject  of  bargain  and  sale  ;  oftentimes  of  a  value  that 
exceeds  that  of  aU  physical  assets  taken  together ;  in  that  it  may  possess 
exchange  value,  it  may  be  "property";  when  it  does  possess  "exchange" 
value,  property  it  is ;  and  the  combination  for  the  purpose  of  destroying  it 
is  for  an  "unlawful  act,"  whether  you  call  the  combination  a  "labor  union" 
or  a  "trust." 

Judge  Gould  also  took  this  position  and  cited  numerous  cases  to 
prove  "that  business  is  property  within  the  meaning  of  the  law."  * 

The  law  also  condemns,  as  illegal  objects,  the  interference  with  and 
restraining  of  trade  or  business  and  of  the  power  to  dispose  of  one's 
capital  and  labor  power  as  one  wishes.  Many  judges  have  pronounced 
this  object  illegal  if  carried  out  by  individuals  as  well  as  combinations. 
In  some  courts  the  element  of  coercion  and  in  others,  that  of  malice, 
must  be  present  to  render  the  acts  illegal. 

1  State  vs.  Glidden,  Conn.,  1887,  8  Atl.  8qo,  807. 

2  Lohse  Patent  Door  Co.  vs.  Fuella,  Mo.,  igog,  114  S.W.  997,  1003. 

'  Buck's  Stove  and  Range  Co.  vs.  A.  F.  of  L.,  Sup.  Ct.,  D.  of  C,  1908. 
^  Ibid.  1907,  70  Al.  L.  J.  8,  10,  II. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   489 

"No  person  or  combination  of  persons  can  legally,  by  direct  or  in- 
direct means,  obstruct  or  interfere  with  another  in  the  conduct  of  Jiis 
lawful  business,^'  declares  an  Illinois  court. ^ 

Judge  Robb  in  the  Buck's  Stove  case  quotes  with  approval  the 
views  of  Chief  Justice  Fuller  regarding  the  illegality  of  a  combination 
in  restraint  of  trade. 

The  combination  charged  falls  within  the  class  of  restraints  of  trade 
aimed  at,  compelling  third  parties  and  strangers  involuntarily  not  to  engage 
in  the  course  of  trade  except  on  conditions  that  the  combination  imposes; 
and  there  is  no  doubt  (to  quote  from  the  well-known  work  of  Chief  Justice 
Earle  on  Trade  Unions)  at  common  law  every  person  has  individually,  and 
the  public  has  collectively,  a  right  to  require  that  the  course  of  trade  should 
be  kept  free  from  unreasonable  obstruction. 

The  right  to  employ  one's  talents  without  interference  is  jeopardized 
by  the  boycott,  according  to  some  decisions.  Thus  a  Vermont  Court 
argues : 

The  principle  upon  which  the  cases,  English  and  American,  proceed  is 
that  every  man  has  the  right  to  employ  his  talents,  industry  and  capital 
as  he  pleases,  free  from  dictation  of  others,  and  if  two  or  more  persons 
combine  to  coerce  his  choice  in  this  behalf  it  is  a  criminal  conspiracy.^ 

"Every  person,"  says  the  Michigan  Court  (Beck  vs.  Railway),  "has 
a  right  under  the  law  as  between  himself  and  his  fellow  subjects  to 
dispose  of  his  own  labor  or  his  own  capital  according  to  his  own  will. 
It  follows  that  every  other  person  is  subject  to  the  correlative  duty 
arising  therefrom,  and  prohibited  from  any  obstruction  to  the  fullest 
exercise  of  this  right  which  can  be  made  compatible  with  the  exercise 
of  similar  rights  by  others." 

Of  the  same  tenor  are  the  decisions  of  the  courts  in  Connecticut 
(State  vs.  Glidden),  Illinois  (London  Guarantee  Co.  vs.  Horn),  Indiana 
(Jackson  vs.  Stanlield),  New  Jersey  (State  vs.  Donaldson),  Maryland 
(Lucke  vs.  Clothing  Cutters),  Massachusetts  (Carew  vs.  Rutherford), 
and  others. 

Inasmuch  as  the  strike  had  been  declared  legal,  even  though  it 
resulted  in  injury  to  the  business  or  property  of  another,  and  inter- 
fered with  the  free  course  of  commerce,  the  many  judges  soon  found 
that  it  would  be  necessary  to  modify  their  declarations  of  illegality  in 
respect  to  combinations  to  injure  the  property  of  another.  They, 
therefore,  sought  to  distinguish  between  combinations  whose  immediate 
purpose  was  to  injure  the  business  of  another,  placing  boycotts  in  this 
category,  and  those  whose  immediate  object  was  that  of  bettering  the  con- 
ditions of  labor,  although  the  incidental  result  of  the  latter  might  be 

'  .State  vs.  .Stewart,  Vt.,  iScS;,  9  Atl.  550.  S68. 


490       LABOR  LAWS  AND   THE  LABOR   CONTRACT 

injury.  Strikes  were  placed  in  this  class.  Boycotts  and  other  com- 
binations whose  immediate  intent  was  said  to  be  that  of  injury  were 
condemned  in  spite  of  the  fact  that  their  ultimate  purpose  or  motive 
was  to  benefit  labor,  while  strikes  were  pronounced  legal. 

Judge  Gould  of  the  Supreme  Court,  District  of  Columbia,  thus 
refers  to  this  distinction  in  the  Buck's  Stove  case  (1907) : 

Defendants  claim  the  motive  of  wishing  to  benefit  their  condition  affords 
such  legal  justification ;  but  this  motive  is  too  remote  compared  with  their 
immediate  motive,  which  is  to  show  that  punishment  and  disaster  neces- 
sarily follow  a  defiance  of  their  claims.  As  quoted  with  approval  by  the 
Supreme  Court  of  Pennsylvania,  in  Purvis  vs.  Brotherhood:  "True,  the 
defendants  contend  and  testify  that  their  purpose  was  to  benefit  their  own 
members.  This,  doubtless,  in  a  sense,  is  true,  but  the  benefits  sought  were 
the  remote  purpose,  which  was  to  be  secured  through  the  more  immediate 
purpose  of  coercing  the  plaintiffs  into  complying  with  their  demands,  or 
otherwise  injuring  them  in  their  business,  and  Ihe  court  cannot,  in  this  pro- 
ceeding, look  beyond  the  immediate  purpose  to  the  remote  results."  Such  is 
the  doctrine  laid  down  in  Eddy  on  Combinations,  and  quoted  with  approval 
in  the  case  of  Erdman  vs.  Mitchell,  56  Atl.  327,  as  follows :  "The  benefit  of 
the  members  of  the  combination  is  so  remote,  as  compared  to  the  direct 
and  immediate  injury  inflicted  upon  the  non-union  workmen  (in  this  case 
non-union  mill  owners)  that  the  law  does  not  look  beyond  the  immediate 
loss  and  damage  to  the  innocent  parties  to  the  remote  benefit  that  might 
result  to  the  union. ^ 

An  Illinois  Court  follows  the  same  line  of  reasoning : 

The  law  allows  laborers  to  combine  for  the  purpose  of  obtaining  lawful 
benefits  to  themselves,  but  it  gives  no  sanction  to  combinations  either  of 
employers  or  employed  which  have  for  their  immediate  purpose  the  injury 
of  another.^ 

The  same  argument  was  suggested  in  State  vs.  Glidden  and  in  nu- 
merous other  cases.  In  making  this  distinction  between  the  imme- 
diate and  the  ultimate  object,  some  have  named  the  immediate  object 
the  "intent"  and  the  remote,  the  "motive."  Mr.  Jeremiah  Smith 
thus  declares : 

Intent  is  used  to  denote  the  immediate  object  aimed  at  by  the  doer  of 
the  act,  the  immediate  result  desired  by  the  actor.  Motive  is  used,  not  to 
signify  the  object  of  the  result  immediately  aimed  at,  but  the  cause  for 
entertaining  that  desire,  the  feeling  that  makes  the  actor  desire  to  attain 
that  result.  .  .  .  The  defendant  frequently  intends  immediate  harm  to 
the  plaintiff,  but  generally  as  a  means  of  attaining  the  end  of  benefiting 
himself.  In  qg  labor  cases  out  of  100,  the  defendant's  motive  (or,  in  other 
words,  his  ultimate,  intent)  is  to  promote  his  own  advantage.     A  man  may 

1  Buck's  Stove,  etc.,  vs.  A.  F.  of  L.,  1907. 

2  Barnes  vs.  Typographical  Union,  111.,  1908,  83  N.E.  940,  945. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   491 

kill  a  king  in  order  to  benefit  a  people.  The  intention  is  to  kill  the  king, 
the  motive,  to  benefit.  A  defendant  denies  intent  to  harm  plaintift"  when 
he  really  means  only  to  deny  a  bad  motive  for  the  intent.  Defendant  means 
that  he  did  not  do  harm  as  an  end  in  itself,  but  merely  as  a  means  to  some 
further  end  legitimately  desired. ^ 

The  Boycott  and  the  Doctrine  of  Malice 

Later  many  of  the  courts  contended  that  no  combination  employ- 
ing lawful  means  could  be  considered  illegal,  unless  it  contained  the 
element  of  malice,  or  unless  it  was  formed  ivithoul  justifiable  cause. 
After  an  examination  of  the  facts  of  the  case,  the  judges  generally 
conclude  that  malice  could  be  found  in  connection  with  the  use  of 
the  boycott,  or  that  there  was  no  legal  justification  for  its  employment. 

The  essential  elements  of  malice  in  most  instances  are  not  clearly 
set  forth.  In  fact  the  judges  are  in  hopeless  disagreement  as  to  what 
constitutes  malice.  Some  argue  that  there  must  be  a  sole  intent  to 
injure;  others  that  there  must  be  no  pecuniary  advantage  to  the  boy- 
cotters.  Some  are  of  the  opinion  that  malice  is  shown  if  the  benefit 
derived  is  at  the  expense  of  the  boycotted,  while  intent  to  wrong  without 
justifiable  cause  is  the  essential  factor  with  others.  Still  another 
group  argue  that  no  legal  malice  is  possible  without  an  unlawful  act. 
Following  are  some  of  the  explanations : 

If  the  persuasion  be  used  for  the  indirect  purpose  of  injuring  the  plaintiff 
or  of  benefiting  the  defendant  at  the  expense  of  the  plaintiff,  it  is  a  malicious 
act.^  (Bowen  vs.  Hall,  an  English  case),  quoted  with  approval  by  Barnes 
vs.  Typog.  Union  (111.,  1908). 

"Practically  it  is  better  to  remember  the  old  definition  that  malice 
in  its  legal  sense  means  an  unlawful  act,  done  intentionally  without 
just  cause  or  excuse."  ^ 

WTien  we  speak  in  this  connection  of  an  act  done  with  a  malicious  motive 
it  does  not  necessarily  imply  that  the  defendants  were  actuated  in  their 
proceedings  by  spite  or  malice  against  the  complainant,  I\Ir.  Barr,  in  the 
sense  that  their  motive  was  to  injure  him  personally,  but  that  they  desired 
to  injure  him  in  his  business  in  order  to  force  him  not  to  do  what  he  had  a  per- 
fect right  to  do.'^ 

It  is  said  that  in  each  case  (where  malice  is  an  element)  the  basis  of  the 
action  is  the  doing  of  an  act  which  the  law  already  regards  as  illegal,  but  that 
the  doer  of  the  act  is  protected  from  its  usual  consequence  in  the  event  that 
he  was  actuated  by  an  honest  desire  to  perform  a  public  or  private  duty. 
Allen  vs.  Flood  (English,  1898). 

'  Harvard  Law  Review,  Vol.  20,  pp.  451,  453. 
2  83  N.E.  940,  944. 

'  Foster  vs.  Retail  Clerk's  Association,  N.Y.,  78  N.Y.  Supp.  S65,  866,  1902,  and  Joyce 
vs.  Gt.  No.  R'waj',  Minn.,  1907.     Italics  are  the  author's. 

*  Barr  vs.  Essex,  N.J.,  1894,  30  Atl.  S81,  886.     Italics  arc  the  author's. 


492   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

Boycotts,  time  without  number,  have  been  condemned  on  the 
ground  that  in  their  operation  that  vague,  indefinable  something 
known  as  malice  was  a  prominent  feature.  Definitions  that  really 
define,  however,  are,  for  the  most  part,  absent. 

Most  recently,  judges  in  a  number  of  states,  concluding  that  the 
word  "malice"  introduced  too  uncertain  a  factor  on  which  to  base 
their  decision,  approved  "justifiable  cause"  as  the  true  criterion. 
What  constitutes  justifiable  cause?  This  expression  is  used  by  some 
judges  as  indicative  of  the  lack  of  maliciousness.  Others,  however, 
take  a  broader  view.  Generally  it  resolves  itself  into  the  question  as 
to  whether  the  possible  gain  to  the  promoter  will  reasonably  com- 
pensate for  the  possible  injury  inflicted. 

"In  many  cases,"  asserts  Judge  Hammond,  "the  lawfulness  of  an 
act  which  causes  damage  to  another  may  depend  upon  whether  an 
act  is  for  justifiable  cause ;  and  this  justification  may  be  found  some- 
times in  the  circumstances  under  which  it  is  done,  irrespective  of  the 
motive,  sometimes  in  the  motive  alone,  and  sometimes  in  the  circum- 
stances and  motive  combined^ 

Judge  Hammond  decided  in  this  case,  which  involved  the  right  to 
threaten  a  strike  should  certain  workers  refuse  to  join  the  union,  that 
justifiable  cause  did  not  exist,  and  that  the  necessity  that  the  plaintiff 
join  the  vmion  was  not  so  great,  nor  was  "the  relation  to  the  rights  of 
the  defendants  as  compared  with  the  rights  of  the  plaintiff  to  be  free 
from  molestation  such  as  to  bring  the  acts  of  the  defendants  under 
the  shelter  of  the  principle  of  trade  competition."  Mr.  E.  W.  Huffcut 
clearly  explains  the  position  of  compensating  advantage  held  by  some : 

There  is  presumptively  a  privilege  to  employ  any  lawful  means  in  social 
or  industrial  relations  .  .  .  and  the  general  and  common  privilege  to  em- 
ploy these  can  be  overcome  only  by  showing  that  they  are  employed  for  an 
unjiistifiahle  end,  that  is,  an  end  which  intcntionaUy  inflicts  a  damage  upon 
a  particular  individual  without  a  corresponding  and  compensating  advantage 
to  the  one  who  inflicts  it,  or  to  those  whom  he  represents.  .  .  .  The  question 
of  justification  resolves  itself  into  this  —  do  the  desire  and  expectancy  of 
accomplishing  this  particular  end  warrant  the  interference  with  the  contracts 
or  business  of  one  who  stands  in  the  way  of  the  accomplishment?  If  that  end 
be  only  the  gratification  of  feeling,  whether  of  ill  will  or  good  will,  it  is  not 
of  such  substantial  character  which  justifies  inflicting  pecuniary  loss  upon 
another.  To  gratify  a  feeling  of  malice  toward  the  plaintiff  will  hardly  be 
thought  a  justification  for  inducing  third  parties  not  to  deal  with  him.  To 
gratify  a  feeling  of  sympathy  or  good  will  toward  X  will  hardly  justify 
inducing  third  persons  not  to  deal  with  the  plaintift"  unless  there  be  some 
special  relation  between  X  and  the  defendant  which  warrants  the  defendant 
in  acting  for  X.  Even  the  remote  advantage  the  defendant  might  derive 
as  one  of  a  large  class,  from  the  success  of  X  in  the  competitive  struggle 
with  the  plaintiff,  would  not  be  sufficient.' 

1  Harvard  Law  Review,  Vol.  i8.,  p.  439. 


LABOR  LAWS   AND   THE  LABOR   CONTRACT       493 

The  elements  which  are  essential  to  justify  injury  are  clearly  stated 
by  Mr.  Jeremiah  Smith  :  ' 

1.  There  must  be  a  conflict  of  interest  between  plaintiff  and  de- 
fendant as  to  the  subject  matter  in  regard  to  which  the  damage  is 
done,  or  at  least  there  must  he  a  legitimate  interest  of  defendant  to  be 
directly  served  as  to  that  subject  matter. 

2.  The  damaging  act  must  he  reasonahly  calculated  to  advance  suh- 
stantially  the  interests  of  the  defendants. 

3.  The  damage  residting  to  the  plaintiff  or  to  the  general  public 
(including  the  employer)  must  not  be  excessive  in  proportion  to  the 
hcnefit  to  the  defendant.  In  other  words,  there  must  be  a  reasonable 
proportion  between  the  benefit  to  the  defendant  and  the  damage  to 
the  plaintiff  or  to  the  public. 

4.  Even  where  the  propositions  one,  two  and  three  are  made  out, 
the  justification  must  be  confined  to  those  cases  where  defendant 
uses  only  his  own  conduct  as  a  lever,  and  therewith  operates  directly 
upon  the  possible  employer  or  customer  of  the  plaintift".  Defendant 
can  never  justify  his  right  to  work  or  not  to  work  (or  any  other  right) 
as  a  temporal  inducement  to  influence  an  outsider  or  fourth  person, 
to  exert  pressure  upon  the  possible  employer  or  customer  of  the  plaintiff. 

A  number  of  the  decisions  in  the  Massachusetts  cases  are  based  on 
this  doctrine. 

"The  crucial  question  is  whether  there  is  justifiable  cause  for  the 
act,"  runs  the  decision  in  Martell  vs.  White  (Mass.,  1904).  "If  the 
injury  be  inflicted  without  justifiable  cause  or  excuse,  then  it  is 
actionable." 

Justice  Holmes  contended  in  Vegelahn  vs.  Guntner  (Mass.,  1896) 
that,  "unless  defendant  prove  some  ground  of  excuse  or  justification," 
a  combination  to  injure  the  business  of  another  would  be  illegal. 
That  such  justification  is  a  sufficient  legal  excuse  is  the  belief  expressed 
in  the  Parkinson  case  (Cal.,  1908). 

While  the  consideration  of  justifiable  cause  is  a  great  advance  over 
the  early  reasonings  in  boycott  cases,  some  jurists  have  advanced  still 
further,  and  have  expressly  based  their  decisions  on  what  they  con- 
sider to  be  the  social  advantage.  Justice  Holmes,  for  instance,  con- 
tends that  "the  true  grounds  of  decisions  are  considerations  of  policy 
and  of  social  advantage,  and  it  is  vain  to  suppose  that  solutions  can  be 
attained  merely  by  logic  and  the  general  propositions  of  law  which 
nobody  disputes."  The  part  which  public  policy  should  play  in  the 
determination  of  legal  questions  is  stated  by  Judge  Andrews : 

It  is  a  truism  that  there  are  many  acts  directly  injuring  the  property  of 
another,  yet  which  do  not  give  rise  to  a  cause  of  action.  The  phrase, 
damnum  absque  injuria,  was  invented  to  meet  such  cases.     A  may  make 

'  Ibid.  Vol.  20,  p.  361. 


494       LABOR  LAWS   AND   THE  LABOR   CONTRACT 

such  erections  upon  his  land  as  he  chooses,  notwithstanding  the  consequent 
injury  to  his  neighbor.  B  may  by  fierce  and  continuous  competition  ruin 
a  business  rival.  C  may  advise  his  friend  to  patronize  one  physician  rather 
than  another.  Of  course  all  these  matters  have  their  limits.  If  A  goes 
too  far  he  may  create  a  nuisance.  If  B's  competition  is  too  strenuous,  he 
may  be  guilty  of  fraud.  If  C  says  too  much,  he  may  become  liable  for 
slander.  In  the  last  analysis  this  freedom  to  commit  injury  and  the  bounds 
imposed  upon  it  are  regulated  by  what  has  been  thought  to  be  public  policy. 
The  injury  itself  is  never  good,  but  to  suffer  it  may  entail  less  injury  than  to 
attempt  to  check  it  by  legal  means. ^ 

Boycotts  and  Illegal  Means 

Still  other  courts  prefer  to  look  for  the  element  of  illegality  in  the 
means  employed  by  the  boycotters.  If,  to  effect  their  purpose  of  injur- 
ing others,  the  combination  used  coercion,  intimidation,  force,  violence, 
misrepresentation  or  fraud,  or  induced  others  to  break  their  contracts, 
it  is  looked  upon  as  illegal.  Many  a  judicial  controversy  has  been 
fought  o\'er  the  question  as  to  what  really  constitutes  coercive  meas- 
ures, threats,  and  other  illegal  means.  Some  judges  have  contended 
that  any  threat,  direct  or  indirect,  of  loss  of  business  such  party  to 
cease  business  relations  ■\\ith  another,  is  coercive  and  intimidating  in 
its  nature  and  therefore  illegal,  if  it  forces  a  man  against  his  will  to 
grant  the  conditions  demanded.  Others  have  averred  that  the  same 
reasoning  which  is  applied  to  ordinary  business  dealings  should  also 
obtain  in  the  discussion  of  labor  combinations ;  and  that,  in  the  com- 
petitive struggle  of  the  business  world,  parties  are  daily  compelled  to 
grant  financial  concessions  through  threats  of  which  it  is  impossible 
for  the  law  to  take  cognizance. 

To  declare  a  boycott  illegal  because  a  threat  is  made  to  boycott 
another  if  he  continues  to  trade  ^\-ith  the  boycotted  firm  is,  further- 
more, vicious  reasoning  in  a  circle.  Some  judges,  therefore,  argue 
that  unless  the  means  used  are  such  as  will  be  considered  illegal  if 
used  by  one  individual,  such  as  the  application  of  physical  violence, 
the  use  of  fraud,  the  inducing  of  another  to  break  his  contract,  the 
combination  should  be  permitted. 

If  we  analyze  the  attitude  of  the  judges  as  to  what  constitutes 
coercive  measures,  we  will  find  that,  generally  speaking,  proof  of 
physical  violence  is  not  necessary. 

''The  clear  weight  of  authority  undoubtedly  is  that  a  man  may  be 
intimidated  into  doing  or  refraining  from  doing  by  fear  of  loss  of 
business,  property  or  reputation,  as  well  as  by  dread  of  loss  of  life,  or 
injury  to  health  or  limb,  and  that  the  extent  of  this  fear  need  not  be 
abject,  but  only  such  as  to  overcome  his  judgment,  or  induce  hifu  to  do 

1  Foster  vs.  Retail  Clerks'  etc.,  N.Y.,  igo2,  78  N.Y.  Supp.  860,  864.    Italics  are  the 

author's. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   495 

or  not  to  do  that  which  otherwise  he  would  have  done  or  left  undone," 
declared  Vice  Chancellor  Green. ^ 

The  Massachusetts,^  Pennsylvania,  and  other  courts  take  a  similar 
view.  Actual  threats  are  not  necessary,^  in  the  view  of  some.  Judge 
Andrews  declares  on  this : 

It  should  be  remembered  .  .  .  that  to  constitute  intimidation  it  is  not 
necessary  that  there  should  be  any  direct  threat,  stiU  less  any  actual  act  of 
violence.  It  is  enough  that  the  mere  attitude  assumed  by  the  defendants  is 
intimidating.  And  this  may  be  shown  by  all  the  circumstances  in  the  case, 
by  the  methods  of  the  defendants,  their  circulars,  their  numbers,  their 
devices.'' 

That  the  imposition  of  fines  on  members  of  the  labor  organizations 
who  refuse  to  boycott  third  parties  constitutes  coercion  is  held  by 
some  of  the  courts  in  Vermont,^  Indiana,^  and  elsewhere. 

Not  only  the  actual  coercive  or  intimidating  measures,  but  threats 
to  adopt  such  measures,  are  considered  as  illegal  means  by  the  majority 
of  the  judges,  and  "threats"  also  cover  a  midtitude  of  deeds.  The 
Cyclopaedia  of  Law  and  Procedure  concludes,  citing  Boutwell  case: 

It  is  clear  that  every  one  has  a  right  to  withdraw  patronage  when  he 
pleases,  but  equally  clear  that  he  has  no  right  to  employ  threats  or  intimida- 
tion to  divert  the  patronage  of  another.'' 

A  Michigan  Court  thus  summarizes : 

The  boycott  condemned  by  law  is  not  alone  that  accompanied  by  violence 
and  threats  of  violence,  tyut  that  where  the  means  used  are  threatening  in  their 
nature,  and  intended  and  naturally  tend  to  overcome  by  fear  of  loss  of 
property  the  will  of  others,  and  compel  them  to  do  things  they  could  not 
otherwise  do.^ 

The  use  of  the  word  "boycott'^  is  in  itself  a  threat  wrote  the  judge  in 
an  early  Pennsylvania  case  (Brace  vs.  Evans,  Pa.,  1888).  "In  popular 
acceptation  it  is  an  organized  effort  to  exclude  a  person  from  business 
relations  with  others  by  persuasion,  intimidation  and  other  acts 
which  tend  to  violence,  and  thereby  coerce  him,  through  fear  of  result- 
ing injury,  to  submit  to  dictation  in  the  management  of  his  affairs."  ^ 

1  Barr  vs.  Essex,  N.J.,  1891,  ,so  Atl.  881,  889. 
^  Plant  vs.  Woods,  Mass.,  iqoo. 
'  Purv'is  vs.  United  Brotherhood,  Pa.,  1906. 

*  Foster  vs.  Retail  Clerks'  etc.,  N.Y.,  1902,  78  N.Y.  Supp.  860,  863.  Italics  are  the 
author's. 

'  Boutwell  vs.  Marr,  Vt.,  1899. 

•Jackson  vs.  Stanfield,  Ind.,  1893. 

'  Italics  are  the  author's. 

'Beck  vs.  Teamsters'  Union,  Mich.,  1898,  77  N.W.  13,  24.     Italics  are  the  author's. 

'  5  Pa.  Co.  Ct.  163,  171.     Italics  are  the  author's. 


496   LABOR  LAWS  AND  THE  LABOR  CONTRACT 

Threats  will  often  be  read  into  language  which  in  form  is  mere  per- 
suasion. The  kind  of  threat  it  is  necessary  to  make  in  order  to  render 
the  act  illegal  is  not  stated  in  many  of  the  decisions.  Some  contend 
that  the  threat  must  be  to  do  an  unlawful  act.  A  Tennessee  Court 
concludes : 

In  law  a  threat  is  a  declaration  of  an  intention  or  determination  to  injure 
another  by  the  commission  of  some  unhnvjiil  act.  ...  If  the  act  intended 
to  be  done  is  not  lawful,  then  the  declaration  is  not  a  threat  in  law,  and  the 
effect  thereof  is  not  intimidation  in  a  legal  sense. ^ 

Many  of  the  courts,  indeed,  have  shown  great  skill  in  reading  into 
mere  requests  this  illegal  deed  of  threatening.  Li  Plant  vs.  Woods, 
for  instance  (Mass.,  1900),  the  workers  on  a  strike  visited  the  em- 
ployers of  other  union  men  to  incj[uire  whether  the  former  would  use 
their  good  services  in  having  the  men  reinstated.  During  the  con- 
versation, the  workers  were  asked  whether  it  would  mean  trouble,  if 
the  request  was  not  granted,  and  the  men  replied  that  it  might.  This 
was  a  threat,  in  the  eyes  of  the  court. 

Violence,  of  course,  is  considered  an  illegal  means. 

"The  labor  and  skill  of  the  workmen  ;  the  equipment  of  the  farmer ; 
the  investment  of  commerce  are  all,  in  equal  sense,  commerce.  If 
men,  by  overt  acts  of  violence,  destroy  either,  they  are  guilty  of 
crime."  ^ 

Freedom  of  Speech  and  Press 

Boycotters  have  often  contended  that  to  prevent  them  from  pub- 
lishing notices  of  the  boycotts,  and  otherwise  announcing  them  in 
print,  is  an  infringement  of  the  freedom  of  the  press,  granted  by  the 
Constitution.  The  courts,  however,  have  for  the  most  part  held  that 
when  such  publication  is  one  of  the  means  employed  in  carrying  out 
an  illegal  purpose  —  that  of  boycotting  —  the  free- speech  argument 
is  without  merit.  It  is  also  contended  that  no  right  is  absolute,  and 
that,  when  its  unbridled  exercise  infrmges  on  the  equal  rights  of 
others,  and  deprives  them  of  such  rights  as  that  of  acquiring,  possess- 
ing and  protecting  property,  the  law  can  and  should  interfere. 

In  granting  the  injunction  against  Mr.  Gompers,  Judge  Gouly 
examined  the  contention  of  the  defendants  that,  if  plaintiff  had  any 
redress  for  such  publication,  it  was  for  action  for  the  libel,  and  that 
equity  will  not  enjoin  a  libel.     He  added : 

.\11  this  would  have  merit  if  the  act  of  the  defendants  in  making  such 
pubHcation  stood  alone,  unconnected  with  other  conduct  both  preceding 
and  following  it.  But  it  is  not  an  isolated  fact ;  according  to  the  allegations 
of  the  bill  and  the  supporting  affidavits,  it  is  an  act  in  a  conspiracy  to  destroy 

1  Payne  vs.  R.R.,  Tenn.,  1884,  49  Am.  Rep.  666,  674. 
«  State  vs.  Stewart,  Vt.,  1S87. 


LABOR  LAWS  AND  THE  LABOR  CONTRACT   497 

plaintiffs  business,  an  act  which  has  a  definite  meaning  and  instruction  to 
those  associated  with  defendants  and  an  act  which  is  the  basis  of  conduct 
on  the  part  of  defendant's  associates  which  unlawfully  interferes  with 
plaintiff's  right  of  freedom  to  trade  with  those  whom  he  pleases.  The 
argument  of  counsel  is  fully  answered  by  the  language  of  Air.  Justice  Holmes 
in  the  case  of  Aikens  vs.  Wisconsin,  195  U.S.  194:  "No  conduct  has  such 
an  absolute  privilege  as  to  justify  all  possible  schemes  of  which  it  may  be 
a  part.  The  most  innocent  and  constitutionally  protected  of  acts  or 
omissions  may  be  made  a  step  in  a  criminal  plot,  and,  if  it  is  a  step  in  a  plot, 
neither  its  innocence  nor  the  Constitution  is  sufficient  to  prevent  the  punish- 
ment of  the  plot  by  law."  ^ 

The  same  general  principle,  though  not  so  stringent  an  application 
thereof,  was  held  by  Judge  Robb  of  the  Court  of  Appeals,  in  affirming 
a  portion  of  the  injunction.^ 

"While  the  right  of  free  speech  is  guaranteed  to  all  citizens  by  the 
Constitution,"  holds  a  California  judge  (Jordahl  vs.  Hayda,  Cal., 
1905),  "there  is  also  guaranteed  to  them  by  the  same  Constitution 
the  right  'of  acquiring,  possessing  and  protecting  property  and  obtain- 
ing safety  and  happiness'  (see  Art.  i,  Sect.  I) ;  .  .  .  and  it  is  a  maxim 
of  jurisprudence  prescribed  by  the  statute  law  of  this  State  that  one 
must  use  his  rights  so  as  not  to  infringe  upon  the  rights  of  another. 
(Civil  Code,  Sect.  3514.)" 

"It  would  be  strange  indeed,"  wrote  Judge  Taft,  "if  that  right 
(to  assemble  and  free  speech)  could  be  used  to  sustain  the  carrying 
out  of  such  an  unlawful  and  criminal  conspiracy  as  we  have  seen  this 
to  be.  .  .  .  If  the  obstruction  to  the  operation  of  the  road  by  the 
receiver  was  unlawful  and  malicious,  it  is  not  less  contemptible  because 
the  instrument  which  he  used  to  efifect  it  was  his  tongue  rather  than 
his  hand."  ^ 

'  Buck's  Stove  and  Range  Co.  vs.  A.  F.  of  L.,  Sup.  Ct.,  D.  of  C,  1907,  70  Al.  L.  J.  8,  lo. 
Italics  are  the  author's. 

2  A.  F.  of  L.  vs.  Buck's  Stove  and  Range  Co.,  Ct.  of  Ap.,  D.  of  C.  1909.  Italics  are 
the  author's. 

3  Thomas  vs.  Cirni.,  N.  O.  and  T.  P.  Ry.  Co.,  U.  S.  Circ.  Ct.,  Ohio,  1894,  62  Fed.  803,  822. 


VII 

TENDENCIES   TOWARD    FEDER.\L    CONTROL   OF 
COMMERCE    AND    INDUSTRY 

CONSTITUTIONAL  ASPECTS  OF  FEDERAL    REGLTATION 
OF   BUSINESS  1 

By  James  Parker  Hall,  Dean  of  the  College  of  Law, 
Chicago  University 

(From  the  Journal  of  Political  Economy,  IMay,  191 2) 

It  is  a  consequence  of  American  theories  of  constitutional  govern- 
ment that  all  important  legislation  affecting  property  rights  and 
economic  opportunity  must  at  some  stage  run  the  gauntlet  of  profes- 
sional legal  opinion  in  the  courts.  It,  of  course,  does  not  follow  that 
such  opinion  will  necessarily  or  properly  be  adverse  to  such  proposals 
merely  because  they  are  novel,  nor  that  the  process  of  obtaining  this 
opinion  should  be  unduly  beset  by  delay  and  uncertainty.  Nor  is  it 
meant  to  arrogate  to  courts  any  more  than  to  legislatures,  nor  to 
lawyers  any  more  than  to  sociologists,  any  permanent  or  authorita- 
tive control  over  the  course  of  social  evolution.  Courts  and  consti- 
tutions yield  and  should  yield  to  the  pressure  of  actual  economic  and 
social  conditions,  just  as  do  the  other  organs  of  any  government 
properly  responsible  to  the  movements  of  deliberate  public  opinion. 
For  the  purposes  of  the  present  discussion,  however,  I  shall  assume 
the  validity  of  the  construction  now  placed  upon  the  federal  Consti- 
tution by  the  courts,  and  shall  briefly  inquire  what  warrant  this 
would  give  for  such  regulation  of  business  by  the  federal  government 
as  has  been  proposed  in  recent  discussion. 

At  the  risk  of  repeating  what  is  doubtless  already  well  imderstood, 
let  me  first  recall  that  the  Constitution  di\'ides  all  powers  of  govern- 
ment between  the  states  and  the  United  States,  save  a  few  which  it 
prohibits  altogether,  like  that  of  taxing  exports.  It  accomplishes 
this  by  granting  to  the  United  States  certain  enumerated  powers, 

1  A  paper  read  before  the  Western  Economic  Society  at  Chicago,  March  i,  igi2. 

498 


COMMERCE  AND   INDUSTRY  499 

which,  with  those  fairly  to  be  implied  from  them,  mark  the  limits 
within  which  the  federal  government  may  act.  All  of  the  non-granted 
powers  of  government  are  reserved  to  the  states.  Now  if  Congress 
wishes  effectively  to  regulate  an  industry  like  the  steel  business,  or  a 
corporation  like  the  International  Harvester  Company,  it  must  bring 
its  legislation,  in  principle  and  in  details,  within  the  scope  of  the 
powers  granted  to  it  by  the  Constitution,  and  must  not  trespass  upon 
regulative  powers  reserved  to  the  states.  This  is  one  of  the  em- 
barrassments inherent  in  a  federal  form  of  government  like  ours, 
which  must  be  met  as  best  it  may. 

The  powers  upon  which  the  United  States  must  chiefly  depend, 
should  it  undertake  such  a  regulation  of  business,  are  the  power  to 
regulate  commerce  among  the  states  and  with  foreign  nations,  the 
power  of  taxation,  and  perhaps  the  power  over  the  postal  service. 

The  power  to  regulate  commerce  among  the  states,  it  will  be  ob- 
served, falls  considerably  short  of  the  power  to  regulate  business  in 
general.  In  the  first  place  it  is  confined  to  "commerce,"  and  in  the 
second  place  to  commerce  "among  the  states."  In  colloquial  speech 
"commerce"  is  frequently  used  as  synonymous  with  business,  but  in 
the  Constitution  it  is  well  settled  that  "commerce"  is  confined  to 
those  forms  of  business  that  involve  intercourse  or  are  fairly  incidental 
thereto.  Thus  defined,  it  includes  all  activities  substantially  affect- 
ing the  transportation  of  any  kind  of  property  or  property  symbol, 
the  transmission  of  intelligence  in  any  form,  and  all  modes  of  personal 
travel.  Doubtless  the  transmission  of  any  form  of  energy  will  also 
be  included  when  the  case  arises.  The  phrases  "among  the  states" 
and  "with  foreign  nations"  still  further  confine  the  action  of  Congress 
to  such  intercourse  as  crosses  state  lines.  Intercourse  between  places 
in  the  same  state,  which  does  not  at  any  point  pass  outside,  is  not 
interstate  or  foreign  commerce. 

The  courts  have  been  fairly  liberal  in  including  within  the  notion 
of  "intercourse"  activities  that  are  incidental  to  the  actual  inter- 
course or  transmission  itself.  Thus,  the  sale  or  the  solicitation  of 
the  sale  of  commodities  for  the  purpose  of  transmission  between  the 
states,  or  their  sale  for  the  first  time  in  the  original  packages  after 
transmission,  have  been  held  to  be  part  of  interstate  commerce  itself. 
But  the  production  of  commodities,  whether  by  manufacturing,  agri- 
culture, mining,  or  fishing,  has  repeatedly  been  said  to  be  no  part  of 
such  commerce.  The  interstate  transportation  or  marketing  of  goods 
may  thus  be  controlled  by  Congress  (the  Sherman  Anti-Trust  law 
being  an  instance  of  such  control) ,  but  is  there  any  method  by  which 
it  might  indirectly  also  control  capitalization  and  production  ?  I  ven- 
ture to  suggest  that  there  are  several  ways  in  which,  if  desired  by 
Congress,  this  could  be  done. 

In  the  first  place  the  power  to  regulate  interstate  commerce  is 


50O    TENDENCIES  TOWARD   FEDERAL   CONTROL  OF 

given  to  Congress  unqualifiedly,  and  is  subject  to  no  limitation  except 
the  general  prohibitions  upon  congressional  action  to  be  found  in  the 
Constitution,  the  most  important  of  which  in  this  connection  is  that 
liberty  and  property  shall  not  be  taken  without  due  process  of  law. 
It  is  apparently  well  settled  that  Congress  may  exercise  its  granted 
powers  for  any  purpose  it  pleases  (subject  to  the  above-mentioned 
prohibitions),  even  though  the  object  and  effect  of  its  action  be  to 
accomplish  indirectly  what  it  could  not  do  by  direct  action.  For 
instance,  Congress  has  no  power  directly  to  prohibit  lotteries  in  a 
state.  It  did,  however,  forbid  the  transmission  of  lottery  matter 
through  the  mails  —  not  at  all  in  the  interest  of  the  postal  ser\dce  as 
such,  or  in  furtherance  of  any  other  power  granted  to  Congress,  but 
solely  in  order  to  embarrass  the  operations  of  lotteries  in  states  where 
they  were  legal  and  where  Congress  was  under  the  Constitution  power- 
less directly  to  forbid  them.  When  this  hindrance  to  lotteries  proved 
insufficient.  Congress  absolutely  forbade  the  carriage  of  lottery  tickets 
from  one  state  to  another  under  its  power  to  regulate  interstate  com- 
merce. Obviously  no  commercial  object  w^as  sought  by  this  —  only 
the  suppression  of  lotteries  in  places  where  under  the  Constitution 
they  were  legal.  But  the  law  was  upheld  on  the  ground  that  Congress 
could  regulate  interstate  commerce  fpr  any  purpose  not  forbidden  by 
the  Constitution,  not  merely  for  purposes  granted  by  the  Constitution. 

In  like  manner,  may  not  Congress  indirectly  control  methods  of 
production  in  industry  in  a  state  by  forbidding  the  privileges  of  in- 
terstate commerce  to  the  product  unless  its  rules  regarding  produc- 
tion are  complied  with?  Witness  the  Meat  Inspection  law  which 
excludes  from  interstate  commerce  all  meat  not  submitted  to  federal 
inspection,  and  the  Pure  Food  and  Drugs  law  which  requires  the 
proper  labeling  of  these  articles  before  their  admission  to  interstate 
commerce.  It  may  be  argued  that  these  laws  aim  at  securing  more 
healthful  articles  of  commerce  and  the  prevention  of  fraud  in  com- 
merce. Granted  —  but  what  was  the  object  of  the  law  against 
lottery  tickets?  Not  to  prevent  sickness  or  fraud,  but  to  suppress 
an  economic  and  social  evil.  And  so  the  recent  federal  law  against 
bringing  women  into  a  state  for  immoral  purposes  has  no  commercial 
object,  but  only  a  moral  one. 

Now  Congress  cannot  directly  forbid  child  labor  in  North  Carolina, 
or  a  14-hour  day  in  the  Pittsburgh  steel  mills,  but,  if  it  washes  seriously 
to  hinder  such  practices,  can  it  not  forbid  the  products  of  such  labor 
from  being  carried  to  other  states,  where  they  compete  with  products 
produced  under  better  but  more  expensive  conditions  and  so  tend  to 
render  economically  difiEicult  or  impossible  the  maintenance  of  im- 
proved conditions  in  industry  elsewhere?  One  of  the  stock  argu- 
ments against  laws  for  the  betterment  of  industrial  conditions  in  every 
state  has  been  the  protest,  "If  you  make  us  do  that,  we  can't  compete 


COMMERCE  AND   INDUSTRY  501 

with  employers  in  other  states  who  don't  have  to  do  it."  Surely 
Congress  may  as  readily  use  its  commercial  powers  to  prevent  sweat- 
shop and  child-labor  competition  in  interstate  commerce,  as  to  secure 
freedom  from  combination,  or  fraud,  or  gambling  in  that  commerce. 

In  the  second  place.  Congress  probably  has  considerably  more 
power  over  corporations  engaged  in  interstate  commerce  than  it 
would  have  over  individuals  similarly  engaged.  As  practically  all 
business  important  enough  to  require  federal  regulation  is  conducted 
by  corporations,  this  consideration  is  of  great  importance.  The  argu- 
ment that  appears  to  establish  it  runs  as  follows : 

The  right  to  become  a  corporation  or  to  act  in  corporate  form  is 
not  a  natural  right  of  individuals  protected  from  arbitrary  interfer- 
ence by  the  liberty  and  due  process  clauses  of  our  constitutions,  as 
is  the  right  to  engage  individually  in  harmless  business  pursuits. 
The  right  to  act  in  corporate  form  is  a  franchise,  permission  to  exer- 
cise which  must  be  granted  by  a  government,  state  or  national,  before 
it  can  lawfully  be  exercised  by  any  one  for  any  purpose  no  matter  how 
innocent.  Thus,  Illinois  could  not  deny  absolutely  to  individuals  the 
right  to  sell  wholesome  sugar  as  an  article  of  food  or  to  till  the  soil 
—  these  being  arbitrary  interferences  with  the  natural  liberty  of  the 
individual.  But  Illinois  may  decline,  for  any  reason  or  for  no  reason, 
to  grant  to  any  one  a  franchise  to  sell  sugar  or  to  conduct  farming 
operations  in  corporate  form,  and  may  thus  confine  these  activities  to 
individual  effort.  What  Illinois  may  absolutely  forbid,  it  may  of 
course  grant  on  terms,  and  so  may  require,  as  the  price  of  its  consent 
to  a  grant  of  corporate  privileges,  that  corporations  submit  to  exac- 
tions and  regulations  that  could  not  be  demanded  from  indi\'iduals. 
The  state  may  thus  gain  the  right  to  supervise  a  corporation's  issues 
of  stock  and  bonds,  its  methods  of  production  and  distribution,  its 
obligations  to  employees  and  to  the  public,  and  all  of  the  details  of  its 
organization  and  business,  including  its  rates  and  dividends. 

As  regards  corporations  of  other  states  seeking  to  do  business  in 
Illinois,  the  same  principles  apply,  with  two  exceptions.  Illinois  may, 
of  course,  if  it  sees  fit,  admit  foreign  corporations  to  do  business  there 
without  restriction.  If  Illinois  takes  no  action  whatever  upon  the 
matter,  it  is  assumed  to  assent  to  this ;  but,  if  it  dissents,  foreign  cor- 
porations must  submit  to  such  terms  as  Illinois  may  prescribe  for 
admission  to  do  business  in  the  state.  The  two  exceptions  to  this 
are  corporations  employed  in  the  service  of  the  United  States,  and 
those  engaged  in  interstate  commerce.  Such  corporations  may  not 
be  excluded  by  a  state,  because  the  business  in  which  they  are  engaged 
is  by  the  Constitution  placed  within  the  control  of  the  United  States 
instead  of  the  separate  states. 

Now  what  control  has  Congress  over  corporations  engaged  in  inter- 
state commerce?     Has  it  not  the  same  power   over  them  that  the 


502     TENDENCIES   TOWARD    FEDERAL    CONTROL   OF 

states  have  over  those  engaged  in  purely  internal  commerce?  And, 
if  so,  may  it  not  use  this  po\Yer  of  corporate  control  as  rigorously  as 
the  states  may  and  do?  The  argument  from  analogy  seems  strong. 
A  state-chartered  corporation  may  engage  in  interstate  commerce 
until  Congress  dissents,  just  as  a  New  Jersey  corporation  may  do 
internal  business  in  Illinois  until  Illinois  dissents.  If  Illinois  chooses, 
however,  it  may  require  a  hcense  from  the  foreign  corporation,  the 
compliance  with  conditions  laid  down  by  the  state,  or  even  reincor- 
poration in  Illinois,  as  a  prerequisite  to  the  doing  of  internal  business 
in  Illinois  in  corporate  form.  So,  also,  it  would  seem  that  the  United 
States  could  rec^uire  state  corporations  doing  interstate  commerce 
either  to  obtain  a  federal  license,  comply  wnth  conditions  laid  down 
by  Congress,  or  take  out  federal  charters  altogether,  as  a  prerequisite 
to  engaging  in  interstate  commerce  in  corporate  form. 

If  so,  M'hat  conditions  may  be  imposed  as  the  price  of  either  license 
or  charter?  If  a  charter  is  required,  of  course  stock  and  bonds  may 
be  regulated  as  well  as  all  other  details  of  corporate  management. 
If  a  license  is  required,  it  may  be  conditioned  upon  compliance  with 
congressional  regulations  as  to  production,  distribution,  methods  of 
competition,  publicity  of  accounts,  prices,  and  so  forth,  that  would 
give  Congress  a  virtual  control  over  many  matters  other  than  those 
directly  connected  with  the  interstate  transmission  of  commodities  by 
such  corporations.  If  Congress  has  the  same  measure  of  control  over 
interstate  commerce  by  corporations  that  a  state  has  over  internal 
commerce  by  corporations,  such  conditions  would  be  valid ;  and  the 
convenience  and  necessity  of  carrying  on  large  businesses  in  corporate 
form  would  compel  the  acceptance  of  such  conditions  pro\ided  they 
were  at  all  reasonable.  The  nature  of  a  corporation  as  the  basis  of 
governmental  control  must  play  an  important  part  in  the  legal  theory 
of  any  thoroughgoing  measure  of  federal  regulation  of  business. 

In  the  third  place.  Congress  is  likely  to  find  the  poAver  of  taxa- 
tion an  important  instrument  of  regulation.  The  power  to  levy 
taxes  (except  upon  exports)  is  conferred  upon  the  United  States 
without  express  limitation,  save  that  direct  taxes  must  be  appor- 
tioned and  all  taxes  must  be  geographically  uniform  throughout  the 
states.  It  has  been  decided  that  this  power  of  taxation  is  not  con- 
fined to  cases  where  the  object  and  effect  of  the  law  is  to  raise  revenue, 
but  that  the  United  States  may  tax  where  the  result  is  regulation  or 
prohibition  of  the  act  or  object  taxed.  In  1902  Congress  imposed  a 
tax  of  10  cents  a  pound  upon  all  artificially  colored  oleomargarine,  an 
amount  assumed  to  be  prohibitive  of  its  manufacture.  Congress  of 
course  had  no  direct  power  to  prohibit  the  manufacture  of  this  article 
in  a  state,  but  the  tax  was  upheld  by  the  Supreme  Court,  a  decision 
which  seems  to  establish  in  regard  to  taxation  the  principle  previously 
recognized  in  regard  to  the  postal  and  commercial  powers  of  the 


COMMERCE   AND    INDUSTRY  503 

United  States  —  that  they  may  be  exercised  for  any  indirect  purpose 
not  so  arbitrary  as  to  be  a  taking  of  property  without  due  process  of 
law. 

Within  this  principle  Congress  may  apparently  regulate  the  purely 
internal  business  of  a  state  by  taxing  objectionable  features  of  it  so 
heavily  that  they  will  no  longer  be  profitable.  Regulation  by  taxa- 
tion may  thus  become  an  important  item  in  future  governmental 
programs.  One  instance  of  it  we  have  already  in  operation  as  inci- 
dental to  the  present  federal  tax  upon  corporate  earnings,  namely  the 
recjuirement  of  a  certain  amount  of  publicity  regarding  corporate 
business.     The  Esch  Phosphorus  law  is  another. 

Finally,  as  a  last  resort,  Congress  might  deny  the  privileges  of  the 
mails  to  businesses,  which,  though  operating  wholly  within  a  state, 
persisted  in  practices  that  Congress  within  a  reasonable  discretion 
saw  fit  to  disapprove,  following  the  precedent  of  the  lottery  cases. 

To  sum  up,  therefore,  through  taxation,  through  its  postal  powers, 
through  its  control  over  interstate  commerce,  and  particularly  through 
its  control  over  corporations  engaged  in  interstate  commerce.  Congress 
probably  has  the  power  effectively  to  regulate  the  capitalization,  the 
production,  and  the  distribution  of  all  large  commercial  businesses  in 
this  country.  The  practical  difficulties  of  doing  this  wisely  are 
obviously  very  great,  but  I  believe  that  statutes,  carefully  drawn  to 
effect  their  purpose  within  the  limits  here  indicated,  may  constitution- 
ally provide  for  any  form  of  regulation  of  big  business  in  this  country 
that  has  as  yet  been  seriously  proposed. 


THE   CONSTITUTIONALITY  OF   GOVERNMENT  AID 

By  Frank  J.  Goodnow,  President  of  Johns  Hopkins 
University 

(From  "Social  Reform  and  the  Constitution,"  chap.  viii.     The  Macmillan 

Co.     Copyrighted) 

I.   Proper  Purposes  of  Taxation 

The  question  of  the  constitutionality  of  government  aid  to  the 
needy  classes  in  the  community  may  arise  because  of  the  existence 
of  the  rule  which  forbids  the  exercise  of  the  powers  of  taxation  and 
eminent  domain  for  any  but  a  public  purpose. 

The  general  principle  that  the  purpose  for  which  taxes  may  be 
levied  and  property  may  be  taken  must  be  public  is  perfectly  clear, 
but  the  principle  is  to  be  applied  in  the  light  of  our  history.  For  a 
long  time  prior  to  the  adoption  of  the  principle,  both  these  powers 


504  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

had  been  used  for  purposes  which  could  be  considered  as  public,  only 
if  regard  were  had  to  the  indirect  advantages  which  the  public  secured 
from  their  exercise.  Thus  from  a  very  early  time  in  the  history  of 
both  England  and  this  country  the  taxing  power  had  been  used  to 
provide  funds  for  the  support  of  the  poor,  while  private  persons  under 
legislative  authorization  had  been  permitted  to  make  use  of  water 
courses  for  the  development  of  water  power,  which  was  to  be  used 
by  them  for  purposes  of  private  profit.  These  poor  laws  and  these 
mill  acts,  as  they  were  called,  have  been  regarded  as  constitutional, 
notwithstanding  the  general  rule  of  constitutional  law  to  which  allu- 
sion has  been  made. 

As  new  conditions  have  appeared  to  make  necessary  attempts  on 
the  part  of  the  legislature  to  accord  aid  to  various  classes  of  indi- 
viduals in  the  community,  the  courts  have  been  called  upon  to  deter- 
mine whether  such  attempts  are  forbidden  by  the  principle  requiring 
that  the  purpose  of  the  legislature  shall  have  been  public,  or  whether 
they  fairly  come  under  some  of  the  exceptions  to  the  rule  which  have 
been  shown  always  to  have  existed. 

The  validity  of  such  attempts  is  to  be  determined  in  the  first  place 
by  a  consideration  of  the  purpose  and  effect  of  the  fourteenth  amend- 
ment. There  was  nothing  in  the  original  constitution  of  the  United 
States  or  in  the  original  amendments  thereto  which  could  be  regarded 
as  limiting  the  taxing  power  of  the  states  to  public  purposes.  In  Loan 
Association  vs.  Topeka  ^  it  is  true  the  Supreme  Court  affirmed  a  deci- 
sion of  the  circuit  court,  which  had  obtained  jurisdiction  through 
diversity  of  citizenship,  holding  invalid  certain  bonds  issued  by  a 
municipal  corporation  in  aid  of  a  private  manufacturing  enterprise. 
The  grounds  for  the  decision  were  that  there  are,  as  Mr.  Justice  Miller 
expressed  it,  certain  — 

rights  in  every  free  government  beyond  the  control  of  the  state.  A  govern- 
ment which  recognized  no  such  rights,  which  held  the  Hves,  the  liberty,  and 
the  property  of  its  citizens  subject  at  all  times  to  the  absolute  disposition 
and  unlimited  control  of  even  the  most  democratic  depository  of  power,  is 
after  all  a  despotism.  ...  To  lay  with  one  hand  the  power  of  the  govern- 
ment on  the  property  of  the  citizen  and  with  the  other  to  bestow  it  upon 
favored  individuals  to  aid  private  enterprises  and  build  up  private  fortunes 
is  none  the  less  a  robbery,  because  it  is  done  under  the  forms  of  law  and  called 
taxation.  .  .  .  We  have  established,  we  think  beyond  cavil,  that  there 
can  be  no  lawful  tax  which  is  not  levied  for  a  public  purpose. 

This  was  said  as  to  the  meaning  to  be  given  to  the  constitution  of 
the  state  of  Kansas  which  the  court  was  called  upon  to  apply  in  the 
absence  of  decisions  by  the  state  courts  interpreting  it.- 

1  20  Wall.  655. 

*  See  Fallbrook  Irrigation  District  vs.  Bradley,  164  U.S.  112-155. 


COMMERCE   AND    INDUSTRY  505 

Mr.  Justice  Clifford  dissented  from  the  conclusions  of  the  court  on 
the  ground  that : 

Courts  cannot  nullify  an  act  of  the  state  legislature  on  the  vague  ground 
that  they  think  it  opposed  to  a  general  latent  spirit  supposed  to  pervade 
or  underlie  the  constitution,  where  neither  the  terms  nor  the  implications 
of  the  instrument  disclose  any  such  restriction.  Such  a  power  is  denied  to 
the  courts,  because  to  concede  it  would  be  to  make  the  courts  sovereign 
over  both  the  constitution  and  the  people  and  convert  the  government  into 
a  judicial  despotism. 

The  views  of  Mr.  Justice  Clifford  are  approved  in  Fallbrook  Irri- 
gation District  vs.  Bradley/  where  it  is  said  that,  if  an  act  of  a  state 
legislature  does  not  violate  some  provision  of  the  federal  constitution, 
"there  is  no  justification  for  the  federal  courts  to  run  counter  to  the 
decisions  of  the  highest  state  courts  upon  questions  involving  the 
construction  of  state  statutes  or  constitutions,  on  any  alleged  ground 
that  such  decisions  are  in  conflict  with  sound  principles  of  general 
constitutional  law."  The  court,  after  making  this  statement,  pro- 
ceeds to  decide  the  case  before  it  on  the  theory  that  state  taxation  for 
a  private  purpose  would  be  forbidden  by  the  fourteenth  amendment. 

It  may  therefore  be  said  that  the  employment  by  the  state  of  the 
power  of  taxation  for  a  private  purpose  is  unconstitutional  from  the 
point  of  view  of  the  United  States  constitution. 

What  now  is  the  distinction  made  by  the  United  States  Supreme 
Court  between  a  public  purpose,  taxation  for  which  is  proper,  and  a 
private  purpose,  taxation  for  which  is  improper  ?  In  its  decision  of 
this  question  the  Supreme  Court  has  never  overruled  the  decision  of 
a  state  court  that  a  given  purpose,  for  which  state  taxes  had  been 
levied,  was  public  in  character.^  Indeed,  in  Fallbrook  Irrigation  Dis- 
trict vs.  Bradley ,2  the  court,  while  denying  that  the  determinations  of 
state  courts  are  conclusive  "upon  the  question  as  to  what  is  due  process 
of  law,  and  as  incident  thereto,  what  is  a  public  use,"  observed :  ^ 

It  is  obvious,  however,  that  what  is  a  public  use  frequently  and  largely 
depends  upon  the  facts  and  circumstances  surrounding  the  particular  sub- 
ject matter  in  regard  to  which  the  character  of  the  use  is  questioned. 

In  this  case  the  court  held,  for  example,  that  irrigation  was  a 
public  use  in  arid  districts,  and  said : 

1 164U..S.  112. 

2  Ibid. 

'In  Olcott  115.  Supervisors,  i6  Wall.  689,  the  Supreme  Court  did,  indeed,  claim  that  it 
was  not  bound  by  the  decisions  of  the  state  courts  as  to  what  is  a  public  puriwse  for  which 
taxes  may  be  levied,  and  was  of  the  opinion  that  a  purpose  was  public  which  had  been 
declared  to  be  private  by  the  state  court.  The  case  would  appear,  however,  to  have  been 
decided  on  other  grounds. 


5o6     TENDENCIES   TOWARD   FEDERAL   CONTROL   OF 

The  people  of  California  and  the  members  of  her  legislature  must  in 
the  nature  of  things  be  more  familiar  with  the  facts  and  circumstances 
than  can  any  one  who  is  a  stranger  to  her  soU.  This  knowledge  and 
familiarity  must  have  their  due  weight  with  the  state  courts  which  are 
to  pass  upon  the  question  of  public  use  in  the  light  of  the  facts  which  sur- 
round the  subject  in  their  own  state.  For  these  reasons,  while  not  re- 
garding the  matter  as  concluded  by  these  various  declarations  and  acts 
and  decisions  of  the  people  and  legislature  and  courts  of  California,  we 
yet,  in  the  consideration  of  the  subject,  accord  to  and  treat  them  with 
very  great  respect,  and  we  regard  the  decisions  as  embodying  the  de- 
liberate judgment  and  matured  thought  of  the  courts  of  that  state  on  this 
question. 

The  same  position  is  taken  by  the  court  in  Welch  vs.  Swagey  ^ 
where  it  is  said  that  the  court  — 

feels  the  greatest  reluctance  in  interfering  with  the  well-considered  judg- 
ments of  the  courts  of  a  state  whose  people  are  to  be  affected  by  the  opera- 
tion of  a  law.  The  highest  court  of  the  state  in  which  statutes  of  the  kind 
under  consideration  [viz.  statutes  regulating  the  height  of  buildings  in  cities] 
are  passed  is  more  familiar  with  the  particular  causes  which  led  to  their 
passage  (although  they  may  be  of  a  pubhc  nature)  and  with  the  general 
situation  surrounding  the  subject  matter  of  the  legislation  than  this  court 
can  possibly  be.  We  do  not,  of  course,  intend  to  say  that  under  such  cir- 
cumstances the  judgment  of  the  state  court  upon  the  question  will  be  re- 
garded as  conclusive,  but  simply  that  it  is  entitled  to  the  very  greatest 
respect,  and  will  only  be  interfered  with,  in  cases  of  this  kind,  where  the 
decision  is,  in  our  judgment,  plainly  wrong.- 

While  the  California  case  recognized  difTerences  due  to  climate  and 
geographical  conditions,  this  case  from  Massachusetts  recognized  that 
the  same  influence  was  to  be  accorded  to  social  conditions.  For  what 
has  been  c^uoted  was  said  with  regard  to  a  law  passed  to  remedy 
through  limitations  imposed  upon  the  height  of  buildings,  the  evils 
resulting  from  the  uncontrolled  use  of  land,  in  urban  conditions  such 
as  exist  in  a  great  city  like  Boston. 

Whether  the  court  will  carry  this  idea  of  the  local  autonomy  of 
the  states  in  deciding  what  should  be  the  remedies  to  be  applied  to 
the  evils  attendant  upon  an  intense  industrial  life  under  conditions  of 
freedom  of  individual  action,  of  course  cannot  be  said,  but  the  logic 
of  the  argument  cannot  be  avoided  if  the  court  can  be  brought  to  see 
that  the  differences  in  conditions  due  to  the  varied  occupations  of  the 
people  in  dilTerent  parts  of  the  country  are  in  reality  just  as  great  as 

'  214  U.S.  91. 

2  See  also  Wurts  vs.  Hoagland,  114  U.S.  606,  applying  the  same  principle  to  the  draining 
of  swampy  lands  for  which,  even  though  the  lands  are  in  private  hands,  the  power  of  taxa- 
tion may  be  used. 


COMMERCE  AND   INDUSTRY  507 

the  differences  in  climate  and  social  conditions  which  were  recognized 
in  the  opinions  from  which  quotations  have  been  given. ^ 

It  may  therefore  be  concluded  both  from  these  opinions  and  from 
the  absence  of  decisions  overruling  the  determinations  of  state  courts 
on  the  subject  that  each  of  the  states  has  quite  a  large  freedom  of 
action  in  determining,  in  the  circumstances  and  conditions  existing 
within  it,  what  purposes  are  public  from  the  viewpoint  of  its  power  of 
taxation. 

We  are  thus  brought  to  a  consideration,  in  the  second  place,  of  the 
decisions  of  the  state  courts  as  to  what  are  public  purposes  for  which 
the  power  of  taxation  may  be  exercised. 

The  state  courts  have  been  influenced  in  their  determination  of  this 
question  by  the  fact  that  the  undertaking  which  was  being  aided  by 
the  exercise  of  the  power  of  taxation  was  or  was  not  in  the  control  and 
management  of  private  corporations  or  individuals.  Where  the  con- 
trol and  management  are  private,  they  are  more  apt  to  regard  the 
purpose  as  private  than  where  such  control  is  in  the  hands  of  the 
state  or  local  authorities.  Thus  the  Supreme  Court  of  Ohio  has  held 
that  even  under  a  constitution  recognizing  a  duty  upon  the  part  of 
the  state  to  support  the  indigent  blind  in  public  institutions  it  is  im- 
proper for  the  legislature  to  grant  out  of  public  funds  an  allowance 
to  an  indigent  blind  person  not  supported  in  a  public  institution .- 

When  it  is  said  that  the  courts  are  influenced  by  the  fact  that  the 
undertaking  is  under  private  control,  it  is  not  meant  to  indicate  that 
the  character  of  the  control  is  decisive.  For  it  has  freciuently  been 
held  that  where  the  character  of  the  purpose  is  unquestionably 
public,  the  character  of  the  control  is  immaterial.  Thus  the  use  of 
the  taxing  power  to  aid  railway  corporations  has  almost  universally 
been  upheld  as  constitutional.^  It  is  usually  where  the  character  of 
the  purpose  is  doubtful  that  the  character  of  the  control  affects  the 
decision. 

In  what  now  does  doubt  as  to  the  character  of  the  purpose  consist  ? 
In  answermg  this  question  we  have,  as  has  been  intimated,  to  resort 
to  history,  which  has  such  a  potent  influence  on  the  decision  of  con- 
stitutional cases.  Nowhere,  perhaps,  is  the  historical  argument  more 
forcibly  expressed  than  in  Loan  Association  vs.  Topeka,^  where  the 
court  says : 

1  See  also  Missouri  vs.  Lewis,  loi  U.S.  22,  for  a  recognition  of  the  principle  that  var>'- 
ing  conditions  of  population  mav  under  the  fourteenth  amendment  be  subjected  to  different 
treatment  by  the  states.  See  also  Noble  State  Bank.  vs.  Haskell,  31  S.  C.  R.  186,  upholding 
an  assessment  on  banks  to  provide  a  bank  depositors'  guaranty  fund.     Infra,  p.  324. 

-  Lucas  Co.  vs.  State,  75  Ohio  St.  1 14.  See  also  Wisconsin  Kecly  Inst.  Co.  vs.  Milwaukee 
Co.,  95  Wis.  153,  where  a  payment  to  a  private  corporation  for  the  cure  of  an  indigent  drunk- 
ard was  declared  to  be  improper.  But  see  Mayor  vs.  Keely  Inst.,  81  Md.  106 ;  In  re  House, 
46  Pac.  (Col.)  117;   and  White  vs.  Inebriates'  Home,  141  N.Y.  123. 

'  See  e.g.  Olcott  vs.  Supervisors,  16  Wall.  689. 

4  20  Wall.  655. 


5o8     TENDENCIES   TOWARD   FEDERAL   CONTROL   OF 

In  deciding  whether,  in  the  given  case,  the  subject  for  which  the  taxes 
are  assessed  falls  upon  one  side  or  the  other  of  this  line,  they  [the  courts] 
must  be  governed  mainly  by  the  course  and  usage  of  the  government,  the 
objects  for  which  taxes  have  been  customarily  and  by  a  long  course  of  legis- 
lation levied,  what  objects  or  purposes  have  been  considered  necessary  to 
the  support  and  for  the  proper  use  of  the  government  whether  state  or 
municipal.  Whatever  lawfully  pertains  to  this  and  is  sanctioned  by  time 
and  the  acquiescence  of  the  people,  may  well  be  held  to  belong  to  the  public 
use,  and  proper  for  the  maintenance  of  good  government,  though  this  may 
not  be  the  only  criterion  of  rightful  taxation. 

It  follows,  therefore,  that  the  objects  for  which  taxes  have  been 
levied  in  the  past  are  public  purposes  from  this  point  of  view.  Thus 
roads,  schools,  highways,  and  the  protection  of  the  peace,  of  the  pub- 
lic health  and  safety,  are  all  public  purposes  for  which  taxes  may  be 
levied.  It  is  for  this  reason  that  taxes  may  be  levied  to  aid  the  state 
or  municipalities  in  providing  for  the  public  ownership  and  operation 
of  what  we  call  public  utilities.  For  the  question  involved  is  not  the 
character  of  the  control,  the  constitutionality  of  which  is  to  be  deter- 
mined from  a  consideration  of  other  constitutional  principles  than 
that  requiring  the  purpose  of  taxation  to  be  public.  What  is  here  to 
be  considered  is  the  purpose  for  which  the  tax  is  levied  which  in  the 
case  of  a  municipally  owned  and  operated  street  railway,  e.g.,  is  the 
provision  of  public  means  of  communication. 

It  is  only  when  we  come  to  the  new  functions,  the  discharge  of 
which  changed  economic  and  social  conditions  make  it  seem  necessary 
for  the  state  in  either  its  central  or  local  organizations  to  assume,  that 
we  meet  with  difiliculty.  What  criterion  are  we  to  adopt  when  we 
come  to  consider  such  subjects  as  old  age,  accident,  and  sickness  in- 
surance or  pensions,  which  in  some  form  would  appear  to  be  essential 
parts  of  the  program  of  social  reform  in  Germany,  England,  and 
Australasia? 


II.  Pensions  in  Case  of  Old  Age,  Accident,  or  Sickness 

As  no  attempt  has  been  as  yet  made  in  this  country  to  establish  old 
age,  sickness,  and  accident  pensions,  we  have  no  decisions  directly  in 
point.  We  have,  it  is  true,  a  few  decisions  on  the  subject  of  pensions 
to  government  employees.  But  they  cannot  be  regarded  when  favor- 
able as  having  any  particular  force,  since  such  pensions  are  regarded 
rather  as  a  part  of  the  compensation  attached  to  government  employ- 
ment than  as  gratuities.^  Indeed,  we  have  a  few  decisions  which  hold 
such  pensions  to  be  improper  where  they  are  awarded  to  persons  who 
have  already  been  retired  from  the  public  service,^  or  who,  while  in 

1  See  e.g.  Commonwealth  vs.  Walton,  1S2  Pa.  St.  373. 

2  See  e.g.  In  the  Matter  of  Mahon,  171  N.Y.  263. 


COMMERCE  AND   INDUSTRY  509 

the  public  service,  are  not  induced  to  continue  in  service  as  a  result 
of  their  award.^  On  the  other  hand,  the  cases  holding  service  pensions 
of  this  character  to  be  unconstitutional  cannot  be  regarded  as  decid- 
ing that  old-age  pensions,  e.g.,  are  improper  where  such  pensions  are 
confined  to  the  indigent,  since  no  attempt  has  been  made  in  providing 
for  service  pensions  to  confine  them  to  those  who  are  in  pecuniary- 
need. 

In  endeavoring  to  answer  the  question  as  to  the  constitutionality 
of  old  age,  accident,  and  sickness  pensions,  we  must  study  the  cases 
which  have  been  decided  as  to  doubtful  purposes  of  taxation  —  i.e. 
doubtful  from  the  point  of  view  of  their  being  public  or  private  — 
and  then  try  to  reason  by  analogy  from  them  to  the  question  in  hand. 
A  study  of  the  cases  which  have  held  purposes  to  be  private  and 
therefore  to  be  improper  purposes  of  taxation,  can  hardly  fail  to  force 
the  conclusion  that  any  purpose  is  an  improper  purpose  for  taxation 
which  consists  in  the  grant  of  public  moneys  to  individuals  who  are 
not  in  the  service  of  the  government  or  who  cannot  be  regarded, 
because  of  their  poverty,  as  fit  subjects  of  public  charity.  An  old  age, 
accident,  or  sickness  pension  which  is  not  conditioned  upon  poverty 
would  probably  be  regarded  by  the  courts  as  unconstitutional  where 
the  funds  from  which  it  was  paid  were  derived  from  taxation. 

Nor  would  the  benefits  to  the  general  social  system  which  might 
conceivably  be  derived  from  such  a  pension  have  very  great  effect 
upon  the  attitude  of  the  courts.  Even  if  these  advantages  were  con- 
ceded, the  pensions  would  still  be  declared  unconstitutional  unless 
former  decisions  were  overruled.  For,  very  generally,  the  advantages 
derived  by  the  public  from  the  expenditure  of  public  money  do  not 
make  public  the  purpose  of  the  taxes  from  which  such  money  is  ob- 
tained. In  Lowell  vs.  Boston  ^  an  act  of  the  Massachusetts  legisla- 
ture which  was  passed  soon  after  the  Boston  fire  was  under  considera- 
tion. This  act  provided  for  an  issue  of  city  bonds  to  be  ultimately 
paid  for  out  of  taxes,  the  proceeds  of  which  bonds  were  to  be  loaned 
to  individuals  in  order  to  enable  them  to  rebuild  in  the  burnt  districts. 
The  act  was  declared  to  be  unconstitutional  as  providing  for  the 
exercise  of  the  power  to  tax  for  a  private  purpose.  In  the  course  of 
the  opinion  the  court  said : 

Resulting  advantage  to  the  public  does  not  of  itself  give  to  the  means  by 
which  it  is  produced  the  character  of  a  public  use.  .  .  .  There  is  no  public  use 
or  public  service  declared  in  the  statute  now  under  consideration,  and  we  are 
of  opinion  that  none  can  be  found  in  the  purposes  of  its  provisions.  .  .  . 
The  fund  raised  is  intended  to  be  appropriated  distributively,  by  separate 
loans  to  numerous  individuals,  each  one  of  which  will  be  independent  of 
any  relation  to  the  others,  or  to  any  general  purpose,  except  that  of  aiding 

'  See  State  vs.  Ziegenheim,  144  Mo.  283. 
*  III  Mass.  454. 


5IO  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

individual  enterprise  in  matters  of  private  business.  The  property  thus 
created  will  remain  exclusively  private  property  .  .  .  with  no  obligation 
to  render  any  service  or  duty  to  the  commonwealth  or  to  the  city  —  except 
to  repay  the  loan  —  or  to  the  community  at  large  or  any  part  of  it. 

The  court  goes  on  to  say  that  the  fact  that  the  city  will  be  indirectly 
benefited  through  increase  in  trade  and  business  does  not  affect  the 
judicial  aspect  of  the  case  in  any  way.  This  case  has  never  been  over- 
ruled, and  has  been  approved,  by  the  Supreme  Court  of  the  United 
States.^  There  is  also  a  series  of  cases  of  which  Loan  Association  vs. 
Topeka  is  an  example,  holding  that  the  issue  of  city  or  state  bonds 
payable  out  of  the  proceeds  of  taxation  to  aid  private  manufacturing 
corporations  is  improper  as  providing  taxation  for  a  private  purpose. 

Lowell  vs.  Boston  and  Loan  Association  vs.  Topeka  were  decided 
many  years  ago  (1873  and  1874,  respectively).  But  while  there  has 
been  no  indication  of  an  attempt  to  reverse  them  as  to  the  particular 
points  of  the  law  which  they  decided,  they  have  not  been  extended  in 
their  operation.  There  are  also  a  number  of  cases  further,  some 
decided  by  the*  Supreme  Court  of  the  United  States,  which  have 
extended  the  principle  of  the  Railway  Aid  Bond  cases  so  as  to  include 
mills  for  grinding  grain  which  are  open  to  all  comers  at  a  fixed  toU,^ 
thus  recognizing  large  powers  of  social  cooperation  in  local  commtmi- 
ties,  as  well  as  one  case  in  a  state  court  which  has  likewise  somewhat 
extended  the  conception  of  public  charity  so  as  in  districts  affected 
by  droughts  and  other  calamities  to  permit  the  use  of  the  taxing 
power  to  obtain  capital  for  the  purchase  of  seed  corn  by  needy  farmers, 
who,  while  not  at  the  time  paupers,  were  in  great  danger  of  becoming 
such  did  they  not  receive  aid.^ 

But  it  will  be  noticed  that  none  of  the  cases  upon  this  subject  has 
recognized  the  constitutionality  of  acts  which  make  grants  of  public 
moneys  derived  from  taxation  to  persons  not  either  performing  a  public 
service  similar  to  that  performed  by  a  public  ofl&cer  or  a  common  carrier, 
or  not  assimilated  to  the  position  of  paupers.  In  State  vs.  Osawkee 
Township,  in  which  the  opinion  was  given  by  Judge  Brewer,  after- 
wards a  member  of  the  United  States  Supreme  Court,  the  constitu- 
tionality of  the  act  was  denied  because  the  recipients  of  the  aid  given 
were  not  actually  paupers. 

The  only  case  which  shows  any  tendency  to  regard  as  a  public 

'  See  also  State  vs.  Osawkee  Township,  14  Kan.  418,  which  declared  the  grant  of  aid  to 
poor  farmers  to  purchase  grain  for  seed  and  feed,  in  districts  affected  by  drought,  was  not 
a  public  purpose.  This  case  was  decided  in  1875,  only  two  years  after  Lowell  vs.  Boston. 
Cf.  William  Deering  Co.  vs.  Peterson,  75  Minn.  118. 

2  See  e.g.  Burlington  vs.  Beasley,  14  U.S.  310;  Blair  vs.  Gumming  Co.,  in  U.S.  363. 
These  cases  are  also  interesting  as  showing  how  closely  the  Supreme  Court  follows  the  deci- 
sions of  state  courts  as  to  what  are  public  purposes  and  therefore  proper  purposes  for  taxa- 
tion in  their  respective  states. 

3  North  Dakota  vs.  Nelson  Co.,  i  N.D.  88. 


COMMERCE  AND   INDUSTRY  511 

purpose  the  use  of  the  power  of  taxation,  with  the  idea  of  preventing 
pauperism,  is  the  North  Dakota  case  where  it  is  said : 

If  the  destitute  farmers  of  the  frontier  of  North  Dakota  were  now  actually 
in  the  almshouses  of  the  various  counties  in  which  they  reside,  all  the  ad- 
judications of  the  courts,  state  or  federal,  upon  this  subject,  could  be 
marshaled  as  precedents  in  support  of  any  taxation,  however  onerous, 
which  might  become  necessary  "for  their  support.  But  is  it  not  competent 
for  the  legislature  to  make  small  loans,  secured  by  prospective  crops,  to 
those  whose  condition  is  so  impoverished  and  desperate  as  to  reasonably 
justify  the  fear  that  unless  they  receive  help,  they  and  their  families  will 
become  a  charge  upon  the  counties  in  which  they  live? 

What  now  has  been  the  attitude  of  the  state  courts  towards  the 
granting  under  present  constitutional  provisions  of  pensions  or  allow- 
ances to  persons  regarded  as  paupers?  In  answering  this  question, 
it  would  seem  to  be  necessary  to  bear  in  mind  the  character  of  the 
control  of  the  funds  granted.  If  that  is  private,  the  tendency  of  the 
courts  is,  as  has  been  pointed  out,  to  regard  the  purpose  as  also 
private.  Courts  which  recognize  education  as  a  proper  purpose  of 
taxation  sometimes  consider  as  improper  the  grant  of  public  moneys 
to  educational  institutions  under  private  control.^  It  is  true  that 
this  question  of  grants  of  money  to  private  schools  is  somewhat  com- 
plicated by  the  fact  that  private  educational  institutions  which  desire 
public  aid  are  usually  at  the  same  time  sectarian  institutions,  and  on 
that  account  for  other  constitutional  reasons  not  proper  recipients 
of  public  charity.  But  there  are  cases  which  have  taken  the  same 
view  with  regard  to  charitable  institutions  under  private  control 
which  have  been  established  with  the  idea  of  offering  aid  to  particu- 
lar classes  of  indigent  persons.^  Opposed  to  them,  however,  is  an 
imposing  array  of  cases  which  refuse  to  apply  in  charitable  matters 
the  rule  that  the  private  character  of  the  control  necessarily  makes  the 
character  of  the  purpose  private.^ 

But  even  if  we  assume  that  the  better  rule  is  that  public  moneys 
may  constitutionally  be  granted  to  private  corporations  established 
for  charitable  purposes,  we  have  by  no  means  proved  that  public 
moneys  may  be  granted  to  indigent  individuals.  For  corporations 
under  such  conditions  are  regarded  as  acting  as  agents  of  the  state  in 
discharging  the  public  function  of  supporting  the  poor.  They  do  not 
receive  the  funds  granted  them  for  their  own  benefit. 

In  order  to  uphold  from  a  constitutional  point  of  view  the  grant  of 
pensions  to  individuals,  we  may  attempt  to  show  that  such  pensions 

'  Jenkins  vs.  Andover,  103  Mass.  94. 

2  Such  are  the  Keely  Cure  cases  decided  in  Wisconsin,  e.g.  Wisconsin  Keely  Inst.  Co.  vs. 
Milwaukee  Co.,  qs  Wis.  153. 

'Mayor  vs.  Keely  Inst.,  81  Md.  106;  In  re  House,  46  Pac.  (Col.)  117;  White  vs.  In- 
ebriates Home,  141  N.Y.  123 ;  Shepherd's  Fold  vs.  New  York,  96  N.Y.  137. 


512  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

are  justified  by  the  historical  argument,  as  being  a  form  of  poor  reUef, 
and  are  not  to  be  regarded  as  improper  by  the  logic  of  the  decisions 
rendered  with  regard  to  the  propriety  of  particular  attempts  to  provide 
poor  relief. 

May  old  age,  accident,  and  sickness  pensions  granted  to  indigent 
persons  properly  be  regarded  as  a  form  of  outdoor  relief  ?  The  cases 
on  the  subject  of  relief  to  paupers  are  legion,  but  the  question  as  to 
the  constitutionaUty  of  the  numerous  statutes  providing  for  the  grant 
of  outdoor  relief  and  regulating  the  respective  relations  of  the  persons 
receiving  it,  ordering  it,  and  dispensing  it  has  apparently  not  been 
raised.  Such  statutes  are  assumed  to  be  constitutional,  and  the  deci- 
sions have  concerned  themselves  with  determining  the  reciprocal 
rights  and  duties  of  individuals  under  the  statutes. 

On  general  principles  we  can  therefore  assume  that  such  pensions, 
if  granted  to  indigent  persons  under  the  limitations  set  forth,  would 
be  constitutional  as  a  form  of  outdoor  poor  relief,  unless  the  courts  are 
of  the  opinion  that  the  historical  argument  is  inapplicable  and  that 
such  pensions  are  evidence  of  an  attempt  to  adopt  for  our  free,  inde- 
pendent, and  self-supporting  American  population  a  new  and  unprec- 
edented form  of  relief  originating  outside  of  England'  or  the  United 
States  and,  e.g.,  in  one  of  the  paternalistic  governments  of  Europe. 

It  must  be  admitted  that  certain  remarks  made  in  the  course  of 
deciding  one  or  two  concrete  cases  tend  to  force  the  conclusion  that 
all  the  state  courts,  at  any  rate,  are  not  as  yet  prepared  to  regard 
pensions  even  to  indigent  individuals  as  constitutionally  proper  in 
this  land  of  incUvidual  freedom  and  private  initiative.  These  cases 
are  Lucas  County  vs.  State  ^  and  State  vs.  Switzler.^  In  the  former 
the  legislature  provided  for  granting  to  all  adult  blind  persons  "who 
have  l3een  residents  of  the  state  for  five  years  and  of  the  county  one 
year,  and  have  no  property  or  means  with  which  to  support  them- 
selves" allowances  not  to  exceed  twenty- five  dollars  quarterly.  The 
court  declared  the  act  to  be  unconstitutional  largely  on  the  ground 
that  it  provided  for  the  expenditure  of  public  funds  for  a  private  pur- 
pose and  closed  its  argument  by  saying : 

If  the  power  of  the  legislature  to  confer  an  annuity  upon  any  class  of 
needy  citizens  is  admitted  upon  the  ground  that  its  tendency  will  be  to 
prevent  them  from  becoming  a  public  charge,  innumerable  classes  may 
clamor  for  similar  bounties,  and  if  not  upon  equally  meritorious  ground, 
still  on  ground  that  is  valid  in  point  of  law,  and  it  is  doubted  that  any  line 
could  be  drawn  short  of  an  equal  distribution  of  property. 

The  court  was  influenced  in  a  negative  way  by  the  historical  argu- 
ment already  touched  upon.  After  quoting  the  formulation  of  it  by 
Mr.  Justice  Miller  in  Loan  Association  vs.  Topeka,  it  remarked,  "If 

>  75  Ohio  State  114.  2  j^^  jyjo.  287. 


COMMERCE  AND   INDUSTRY  513 

that  rule  is  applied  here,  it  must  be  said  that  the  act  under  considera- 
tion is  without  precedent  in  this  state." 

In  the  Missouri  case  the  legislature  passed  an  act  providing  for  the 
levy  of  a  progressive  inheritance  tax,  which  was  regarded  by  the  court 
as  unconstitutional  both  because  of  its  progressive  character,  and 
because  of  the  purpose  for  which  it  was  levied,  viz.  to  provide  fellow- 
ships in  the  State  University  for  students  dependent  upon  their  own 
exertions  for  their  education  and  "financially  unable  otherwise  to 
obtain  the  same."  In  the  course  of  the  opinion  the  court  took  occa- 
sion to  say  that : 

Paternalism,  whether  state  or  federal  as  the  derivation  of  the  term 
implies,  is  an  assumption  by  the  government  of  a  quasi-fatherly  relation 
to  the  citizen  and  his  family,  involving  excessive,  governmental  regulation 
of  the  private  affairs  and  business  methods  and  interests  of  the  people, 
upon  the  theory  that  the  people  are  incapable  of  managing  their  own 
affairs,  and  is  pernicious  in  its  tendencies.  In  a  word,  it  minimizes  the 
citizen  and  maximizes  the  government.  Our  federal  and  state  governments 
are  founded  upon  a  principle  wholly  antagonistic  to  such  a  doctrine.  Our 
fathers  believed  the  people  of  these  free  and  independent  states  were  ca- 
pable of  self-government ;  a  system  in  which  the  people  are  the  sovereigns 
and  the  government  their  creatures  to  carry  out  their  commands.  Such  a 
government  is  founded  on  the  willingness  and  right  of  the  people  to  take 
care  of  their  own  affairs  and  an  indisposition  to  look  to  the  government  for 
everything.  The  citizen  is  the  unit.  It  is  his  province  to  support  the 
government  and  not  the  government's  to  support  him.  Under  self-govern- 
ment we  have  advanced  in  all  the  elements  of  a  great  people  more  rapidly 
than  any  nation  that  has  ever  existed  upon  the  earth,  and  there  is  greater 
need  now  than  ever  before  in  our  history  of  adhering  to  it.  Paternalism  is 
a  plant  which  should  receive  no  nourishment  upon  the  soil  of  Missouri. 

It  is  to  be  noticed  that  the  historical  argument  which  is  in  large 
degree  the  controlling  argument  in  these  cases,  when  taken  together 
with  the  insistence  upon  that  political  and  economic  theory  known  as 
laisser  faire,  to  which  is  accorded  an  absolute  and  universal  applica- 
tion at  all  times  and  under  all  circumstances,  both  makes  social  re- 
form impossible,  so  far  as  its  concrete  measures  cannot  be  justified  by 
our  own  history,  and  regards  political  and  economic  conditions  as 
static  rather  than  progressive  in  character.  The  result  of  its  universal 
application  will  be  to  fix  upon  the  country  for  all  time  institutions, 
which,  as  has  been  pointed  out,  were  established  in  the  eighteenth 
century  to  deal  with  conditions  then  existing,  but  which  may  in  this 
the  twentieth  century  be  unsuitable  because  of  the  economic,  social, 
and  political  changes  which  have  taken  place  in  the  last  hundred  years. 

The  emphasis  given  to  this  historical  argument,  furthermore,  is 
not  justified  by  the  attitude  of  the  Supreme  Court  of  the  United 
States.     For  Mr.  Justice  Miller  after  formulating  the  argument  in  his 


514    TENDENCIES   TOWARD   FEDERAL   CONTROL   OF 

opinion  in  Loan  Association  vs.  Topeka  was  careful  to  indicate  his 
feeling  that  it  was  not  controlling  by  saying:  "Though  this  may  not 
be  the  only  criterion  of  rightful  taxation,"  while  the  court  in  its  more 
recent  decisions  on  what  is  due  process  of  law  under  the  fourteenth 
amendment  has  shown  very  clearly  that  in  its  opinion  the  decision  of 
the  question  is  to  be  influenced  by  the  geographical  and  social  condi- 
tions attendant  upon  the  particular  case  in  which  the  question  is 
raised. 

Such  an  application  of  the  historical  argument  will,  where  the  con- 
stitution is  not  easily  susceptible  of  amendment,  preclude  the  possi- 
bility of  orderly  and  legal  change  in  our  conception  of  the  powers  of 
government,  made  necessary  by  changes  in  economic  and  social  con- 
ditions, and  may  conceivably  make  unavoidable  resort  to  revolution- 
ary methods  of  change.' 

It  may  then  be  said  that  until  the  state  constitutions  have  been 
changed  and  the  state  courts  have  decided  that  such  changes  are 
from  the  viewpoint  of  the  federal  constitution  proper,  there  is  no  great 
likelihood  that  a  system  of  state  pensions  in  the  case  of  old  age,  sick- 
ness, or  accident  which  is  based  even  on  the  indigence  of  the  recipients 
of  such  pensions  would  be  regarded  as  constitutional.  Whether,  where 
provisions  have  been  inserted  into  the  state  constitutions  making 
such  pensions  clearly  constitutional,  and  the  approval  by  the  state 
courts  of  their  propriety  from  the  viewpoint  of  the  federal  constitu- 
tion has  been  secured,  the  United  States  Supreme  Court  will  be  guided 
by  the  decisions  of  the  state  courts,  is  a  question  about  which  we  may 
indulge  in  an  almost  indefinite  amount  of  speculation,  but  as  to  which 
a  certain  answer  cannot  be  given.  It  is  well,  however,  to  remember 
that  the  Supreme  Court  has  several  times  held  that  the  due  process 
of  law  and  the  equal  protection  of  the  laws  required  by  the  fourteenth 
amendment  are  not  the  same  thing  in  all  parts  of  the  country.  That 
body  has  already  recognized  that  certain  climatic  and  population  con- 
ditions have  the  effect  of  making  state  laws  constitutional  which  under 
different  conditions  might  be  regarded  as  improper.  It  does  not  seem 
a  long  step  from  this  position  to  the  further  position  that  industrial, 
i.e.  economic,  rather  than  climatic  and  social  conditions,  shall  have 
the  same  effect,  and  it  is  always  to  be  borne  in  mind  that  the  Supreme 
Court  has  said  more  than  once  that  the  decision  of  state  legislatures 
and  state  courts,  which  have  knowledge  of  local  conditions,  is  entitled 
to  the  greatest  respect  and  will  not  be  overruled  except  in  a  perfectly 
clear  case. 

The  states,  however,  are  not  the  only  authorities  in  our  government 
which  may  conceivably  wish  to  establish  systems  of  pensions  of  the 
class  under  consideration.  For  in  Great  Britain  and  in  the  German 
Empire,  which  is  a  federal  government  like  our  own,  it  is  the  imperial 
and  not  the  local  government  which  has  made  provision  for  these 


COMMERCE  AND   INDUSTRY  515 

pensions  or  something  very  like  them.  Can  Congress  constitutionally 
provide  for  such  pensions  ? 

The  constitution  of  the  United  States  contains  no  limitations  upon 
the  purposes  for  which  federal  taxes  may  be  levied,  except  those  con- 
tained in  Article  I,  Section  8,  Paragraph  i,  which  says:  "Congress 
shall  have  power  to  lay  and  collect  taxes,  duties,  imposts,  and  excises, 
to  pay  the  debts  and  provide  for  the  common  defense  and  general  wel- 
fare of  the  United  States."  Inasmuch  as  the  government  of  the 
United  States  is  regarded  as  one  of  enumerated  powers,  it  is  considered 
that  the  latter  part  of  this  clause  does  not  contain  a  grant  of  new 
power,  but  rather  imposes  a  limitation  upon  the  purposes  for  which 
the  taxing  power  may  be  used.  So  we  may  assume  that  the  purposes 
of  federal  taxation  are  limited  to  paying  the  debts  and  providing  for 
the  common  defense  and  general  welfare. 

We  have,  however,  practically  no  judicial  decisions  upon  the  ques- 
tion of  the  propriety  of  the  purposes  of  federal  taxation,  and  naturally 
also  none  as  to  old  age,  sickness,  and  accident  pensions.  There  are, 
it  is  true,  a  great  number  of  cases  construing  the  laws  under  which 
pensions  have  been  granted  to  persons  who  at  one  time  were  soldiers 
or  sailors  of  the  United  States.  But  in  these  cases  the  question  of  the 
constitutionality  of  this  disposition  of  the  public  funds  has  not  been 
discussed.  On  the  contrary,  the  constitutionality  has  been  assumed 
and  the  cases  have  been  concerned  with  the  nature  of  the  right  to  the 
pension,  which  has  been  held  to  be  a  gratuity ;  ^  or  with  the  criminal 
provisions  of  pension  laws  adopted  with  the  idea  of  preventing  the 
grant  of  the  pensions  to  improper  persons.^  It  is  true  that,  since 
military  pensions  have  been  held  to  be  gratuities,  the  power  of  Con- 
gress to  provide  for  gratuitous  allowances  to  private  individuals  out 
of  public  funds  has  been  thus  indirectly  upheld ;  but  it  is  to  be  re- 
membered that  these  military  pensions  have  been  given  to  a  class  of 
persons  who  by  reason  of  the  services  they  have  rendered  have  been 
regarded  as  ha\'ing  special  claims  to  the  bounty  of  the  government. 

The  only  cases  which  we  have  where  the  courts  have  been  asked  to 
exercise  a  control  over  the  discretion  of  Congress  in  the  expenditure 
of  public  funds  derived  through  the  exercise  of  the  power  of  taxation 
are  the  Sugar  Bounty  case,^  and  the  Panama  Canal  case.'* 

In  both  these  cases  the  Supreme  Court  refused  to  take  jurisdiction, 
and  in  the  Panama  Canal  case  the  court  said  in  reference  to  the  de- 
mand of  the  plaintiff  that  the  Secretary  of  the  Treasury  be  enjoined 
from  paying  out  money  for  the  canal :  "The  magnitude  of  the  plain- 
tiff's demand  is  somewhat  startling.  .  .  .     For  the.  courts  to  interfere 

1  Walton  vs.  Cotton,  ig  Howard  355 ;   United  States  vs.  Teller,  107  U.S.  621. 

2  See  e.g.  Frisbie  vs.  United  States,  157  U.S.  160. 
^  United  States  vs.  Realty  Co.,  163  U.S.  427. 

*  Wilson  vs.  Shaw,  204  U.S.  24. 


5i6  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

and  at  the  instance  of  a  citizen  who  does  not  disclose  the  amount  of 
his  interest,  to  stay  the  work  of  construction  by  stopping  the  payment 
of  money  from  the  Treasury  of  the  United  States  therefor  would  be 
an  exercise  of  judicial  power  which,  to  say  the  least,  is  novel  and 
extraordinary." 

An  even  stronger  position  is  taken  in  the  Sugar  Bounty  case.  In  this 
case  Congress  passed  an  act  making  an  appropriation  for  the  payment 
of  the  claims  of  those  persons  who,  relying  upon  an  act  of  Congress 
providing  for  the  payment  of  bounties,  had  engaged  in  the  manu- 
facture of  sugar.  The  bounty  act  was  subsequently  repealed,  but 
this  appropriation  had  been  made  in  order  to  tide  over  the  sugar 
manufacturers,  who  were  regarded  as  having  a  moral  claim  against 
the  government.  The  proper  disbursing  ofhcer  of  the  government, 
acting  upon  the  theory  that  both  the  original  bounty  act  and  the  sub- 
sequent appropriation  act  were  unconstitutional  as  appropriating 
public  funds  for  a  private  purpose,  refused  to  pay  the  bounty,  and  a 
mandamus  was  asked  to  force  him  to  make  the  payment.  The  lower 
court  held  the  act  to  be  unconstitutional  and  denied  the  motion. 
After  this  decision  had  been  reached,  the  plaintiffs  in  the  suit  sued  the 
United  States  government  in  one  of  the  circuit  courts  of  the  United 
States  acting  as  court  of  claims,  which  gave  judgment  for  the  plain- 
tiffs, and  the  case  was  brought  by  writ  of  error  to  the  United  States 
Supreme  Court.  That  court,  believing  that  the  case  could  be  decided 
without  entering  upon  a  discussion  of  the  validity  of  the  original  sugar 
bounty  acts,  affirmed  the  judgment  of  the  lower  court.  It  did  so  on 
the  theory  that  the  "debts  of  the  United  States,"  to  pay  which  Con- 
gress may  by  the  constitution  levy  and  collect  taxes,  include  moral 
as  well  as  legal  obligations,  saying:  "Payments  to  individuals  not  of 
right  or  of  a  merely  legal  claim,  but  payments  in  the  nature  of  gratuity, 
yet  having  some  feature  of  moral  obligation  to  support  them,  have 
been  made  by  the  government  by  virtue  of  the  acts  of  Congress  appro- 
priating the  public  money,  ever  since  its  foundation.  Some  of  the 
acts  were  based  upon  considerations  of  pure  charity."  It  is,  of  course, 
a  far  cry  from  claims  of  this  sort  to  old  age,  accident,  and  sickness 
pensions,  and  it  is  doubtful  if  the  moral  obligation  upon  which  pay- 
ments to  individuals  have  been  based  could  be  so  extended  as  to 
include  a  moral  obligation  of  the  government  to  its  needy  classes. 
Yet  that  obligation  has  from  time  immemorial  been  recognized  in  the 
laws  of  England  and  this  country  with  regard  to  poor  relief. 

Furthermore,  if  it  is  said  that  the  granting  of  old  age,  sickness,  and 
accident  pensions  is  an  unwarrantable  extension  of  the  acti\aty  of 
the  federal  government,  it  may  be  answered  that  such  action  is  no  more 
of  an  extension  of  that  activity  than  the  grant  of  bounties  for  the  en- 
couragement of  manufacturing,  which  is  subject  to  state  rather  than 
to  federal  regulation,  or  than  the  grant  of  money  to  educational  insti- 


COMMERCE  AND  INDUSTRY  517 

tutions  as  is  provided  by  the  Morrill  Act,  or  the  gratuitous  distribu- 
tion of  seeds  to  farmers. 

Finally,  it  is  to  be  remembered,  as  the  court  says  in  closing  its 
opinion  in  this  sugar  bounty  case,  that  — 

in  regard  to  the  question  whether  the  facts  existing  in  any  given  case 
bring  it  within  the  description  of  that  class  of  claims  which  Congress  can 
and  ought  to  recognize  as  founded  upon  equitable  and  moral  considerations 
and  grounded  upon  principles  of  right  and  justice,  we  think  that  generally 
such  question  must  in  its  nature  be  one  for  Congress  to  decide  for  itself.  Its 
decision  recognizing  such  a  claim  and  appropriating  money  for  its  payment 
can  rarely,  if  ever,  be  the  subject  for  review  by  the  judicial  branch  of  the 
government. 

It  must  therefore.be  said  that  there  is  at  least  some  ground  to  be 
found  in  the  decided  cases  and  our  legislative  precedents  for  holding 
that  pensions  in  case  of  old  age,  sickness,  or  accident  which  are  pay- 
able to  indigent  persons  only  may  be  provided  for  by  the  Congress  of 
the  United  States.  Even  if  this  is  not  the  case,  it  would  be  difficult 
to  find  a  judicial  remedy  by  applying  which  the  courts  could  interfere. 
The  two  cases  from  whose  opinions  quotations  have  been  made  would 
seem  to  indicate  that  the  courts  of  the  United  States  will  not  interfere 
to  prevent  the  expenditure  of  public  funds.  And  if  the  pensions  were 
to  be  paid  out  of  the  proceeds  of  taxes  which  were  levied  for  other 
purposes  as  well  as  for  the  payment  of  these  pensions,  the  taxpayer 
could  not  bring  the  matter  up  through  contesting  on  this  ground  the 
constitutionality  of  a  tax  which  from  other  points  of  view  was  con- 
stitutional. 

If  a  precedent  is  desired  for  the  distribution  by  the  national  govern- 
ment of  public  property  to  the  needy  classes  in  order  to  subserve  some 
social  end  conceived  of  as  desirable,  one  need  only  point  to  the  policy 
which  has  for  so  manv  years  been  followed  by  the  go\'ernment  in  its 
laws  with  regard  to  the  public  lands.  Originally,  the  public  domain 
was  regarded  as  an  asset  to  be  used  to  pay  the  public  debt  and  a  por- 
tion of  the  current  expense  of  the  government.  Later  on,  viz.  in 
1830,  it  was  used  to  encourage  settlement  through  the  plan  of  pre- 
emption in  accordance  with  w^hich  bona  fide  settlers  were  permitted 
to  take  up  land  up  to  a  maximum  amount,  viz.  a  quarter  section,  at 
the  minimum  price  of  Si. 25  an  acre.  Still  later,  viz.  in  1862,  the 
Homestead  Act  was  passed.  Under  this  act  land  might  be  acquired 
for  nothing  by  a  five  years'  occupation,  which  might  be  commuted  at 
stated  periods  by  the  payment  of  a  regular  purchase  price.  Finally, 
from  the  beginning  of  our  history,  land  has  been  granted  outright 
either  to  specified  classes  of  persons  such  as  soldiers,  or  railway  com- 
panies, or  for  specified  purposes  as  in  the  case  of  the  swamp  land 
grants.     The  purpose  of  the  government  was  twofold.     It  was  first 


5i8    TENDENCIES  TOWARD   FEDERAL  CONTROL  OF 

to  develop  the  resources  of  the  country ;  it  was  second  to  secure  a 
class  of  small  proprietors  in  the  belief  that  such  a  class  made  a  good 
economic  basis  for  democratic  government.  Public  property  was 
granted  to  private  persons  not  merely  to  develop  the  country,  but  to 
offer  greater  equality  of  economic  opportunity  to  the  less  well-endowed 
classes  of  the  community,  and  no  attempt  was  made  to  declare  un- 
constitutional the  action  of  the  government.  It  is,  of  course,  true 
that  Congress  gets  its  power  to  legislate  with  regard  to  the  public 
lands  from  a  special  clause  in  the  constitution,  but  its  discretion  as 
to  the  purposes  for  which  this  power  may  be  exercised  is  no  greater 
than  it  is  as  to  the  purposes  for  which  the  power  of  taxation  may  be 
used. 

Who,  in  view  of  the  history  of  the  public  domain,  will  venture  to 
say  that  the  constitution  limits  the  power  of  Congress  to  dispose  of 
the  public  funds  as  it  sees  fit  in  order  to  promote  what  it  considers 
to  be  the  "public  welfare  of  the  United  States"  to  provide  for  which 
the  constitution  specifically  says  the  taxing  power  may  be  used? 

Our  conclusions  then,  as  to  the  constitutionality  of  old  age,  acci- 
dent, and  sickness  pensions  are,  assuming  that  the  courts  do  not  change 
their  view : 

1.  Such  pensions  when  provided  by  state  action  are  not  prohibited 
by  the  fourteenth  amendment  or  any  other  provision  of  the  federal 
constitution,  particularly  if  they  are  confined  to  indigent  persons. 

2.  If  not  confined  to  indigent  persons,  they  are  unconstitutional 
under  the  ordinary  provisions  of  the  state  constitutions. 

3.  Even  if  confined  to  indigent  persons,  they  are  probably  uncon- 
stitutional under  the  ordinary  provisions  of  the  state  constitutions, 
although  there  is  some  reason  for  believing  they  might  be  justified  as  a 
form  of  outdoor  poor  relief. 

4.  There  is  much  ground  for  the  belief  that  such  pensions,  particu- 
larly if  confined  to  indigent  persons,  might  constitutionally  be  pro- 
vided by  the  federal  government. 

III.   Provision  for  the  Housing  or  the  Working  Classes 

IN  Cities 

The  discussion  of  what  are  public  purposes  of  taxation,  which  has 
already  been  had,  cannot  have  failed  to  throw  some  light  on  the  ques- 
tion of  the  constitutionality  of  advances  of  public  funds  to  persons  not 
actually  in  need  to  aid  them,  for  example,  in  acquiring  homes.  It 
may  hardly  be  claimed  in  the  light  of  what  we  have  seen  that  under 
the  existing  state  constitutions  the  power  of  taxation  may  be  used 
for  this  purpose.  But  it  may  be  said  of  such  schemes  as  well  as  of 
pensions  that  there  is  apparently  no  objection  to  them  from  the  point 
of  view  of  the  limitations  of  the  federal  constitution  on  the  expendi- 


COMMERCE  AND  INDUSTRY  519 

ture  of  public  funds  if  the  funds  to  which  resort  is  had  are  derived 
from  other  sources  than  taxation.  If,  e.g.,  the  states  or  municipalities 
had  derived  large  funds  from  some  system  of  public  insurance  which 
had  been  provided  for  the  working  or  other  classes,  there  would  seem 
to  be  no  constitutional  objection  to  their  making  use  of  them  in  the 
manner  suggested,  in  the  same  way  that  Germany  is  now  doing,  with 
the  twofold  purpose  of  investment  and  social  reform.  Similar  dis- 
position might  also  be  made  of  the  surplus  revenue  from  profitable 
quasi-commercial  undertakings  such  as  railways,  gas,  water  and 
electric  light  works.  The  loaning  to  indi\dduals  of  public  funds  not 
derived  from  taxation  is  not  prohibited  by  the  federal  constitution, 
but  is  at  the  present  time  by  most  of  the  state  constitutions.  Indeed, 
the  misuse  of  the  power  by  the  states  is  probably  responsible  for  the 
provisions  prohibiting  it  which  we  so  commonly  find.  The  state  of 
New  York,  however,  for  many  years  loaned  to  individuals  the  fund 
known  as  the  United  States  Deposit  Fund,  which  originated  in  the 
distribution  of  the  surplus  of  the  United  States  government  in  1837. 
The  constitutionality  of  such  schemes  may,  however,  be  questioned 
from  another  point  of  view.  For  their  successful  realization  would 
in  most  cases  involve  resort  to  the  exercise  by  the  government,  either 
state  or  municipal,  of  the  power  of  eminent  domain,  and  this  power, 
like  the  power  of  taxation,  may  be  exercised  only  for  public  purposes. 
The  question  therefore  naturally  arises,  —  What  purposes  are  public 
from  the  viewpoint  of  the  constitutional  limitations  on  the  exercise 
of  the  power  of  eminent  domain?  At  the  outset,  it  must  be  noted 
that,  because  compensation  must  be  paid  to  the  party  whose  property 
is  taken  under  the  power  of  eminent  domain,  while  no  such  compen- 
sation can  in  the  nature  of  things  be  given  when  it  is  the  power  of 
taxation  which  is  exercised,  the  courts  are  more  apt  to  regard  a  pur- 
pose as  public  in  the  former  than  in  the  latter  case.  Thus,  while  it  is 
unquestionably  unconstitutional  to  tax  one  person  for  the  construc- 
tion of  a  private  factory  not  open  to  general  public  use,  it  is  perfectly 
proper,  on  granting  compensation,  to  give  one  riparian  owner  the 
right  to  build  for  the  purposes  of  a  private  factory  a  dam,  the  neces- 
sary effect  of  which  will  be  to  deprive  the  riparian  owners  farther  up 
the  stream  of  property  rights.  This  principle  was  apparently  applied 
originally  in  the  case  of  grist  mills,  which,  it  has  been  shown,  are  quasi 
public  enterprises.  But  it  was  later  applied  to  ordinary  private  fac- 
tories, and  this  application  of  the  principle  was  upheld  partly  at  any 
rate  on  the  ground  of  the  general  benefit  the  public  derived  from  it, 
long  before  the  adoption  of  the  fourteenth  amendment.  Since  the 
adoption  of  that  amendment  the  constitutionality  of  such  legislation 
has  been  upheld  also  by  the  Supreme  Court.'  It  may  therefore  be 
said  that  that  provision  of  the  federal  constitution  was  in  this  instance 
1  Head  vs.  Amoskeag  Mfg.  Co.,  113  U.S.  9. 


520    TENDENCIES  TOWARD   FEDERAL   CONTROL   OF 

interpreted  in  the  light  of  existing  conditions  and  that  the  Mill  Act 
cases,  although  showing  that  there  are  exceptions  to  the  general  rule, 
do  not  have  great  authority  upon  the  question  at  issue. 

Bearing  in  mind  then  that  a  purpose  which  may  be  private  from 
the  point  of  view  of  the  power  of  taxation  may  be  public  from  the 
point  of  view  of  the  power  of  eminent  domain,  let  us  examine  some  of 
the  cases  which  have  decided  what  purposes  are  either  public  or  private 
from  the  latter  point  of  view.  There  are  four  classes  of  cases  bearing 
on  this  point : 

In  the  first  place,  there  are  those  which,  like  the  Tax  cases,  hold 
that  the  purpose  is  public  where  the  enterprise  for  which  the  property 
is  condemned  is  one  of  which  the  public  generally  make  use.^ 

The  second  class  of  cases  includes  those  decided  in  view  of  peculiar 
and  very  stringent  provisions  of  state  constitutions  strictly  limiting 
the  legislature  in  its  power  to  grant  the  right  of  eminent  domain  to 
private  persons.  The  cases  in  this  class  do  not  permit  the  exercise 
of  the  right  of  eminent  domain  for  a  purpose  which  does  not  benefit 
the  public  generally.^ 

The  third  class  includes  those  cases  which  decide  that  under  the 
ordinary  constitutional  provisions  the  power  of  eminent  domain  may 
not  be  given  to  a  private  person  where  the  undertaking  for  which  it 
is  employed  is  not  one  of  which  the  public  may  make  use.^ 

Finally,  there  are  the  cases  which,  applying  the  principle  at  the 
bottom  of  the  original  Mill  Acts,  hold  under  the  ordinary  constitu- 
tional provisions  that  where  the  economic  development  of  the  country 
or  the  advantageous  use  of  property  requires,  the  legislature  may  on 
providing  for  compensation  authorize  one  person  to  take  the  property 
of  another  for  a  private  purpose,  i.e.  private  in  the  sense  that  the 
general  pviblic  does  not  have  the  right  to  make  use  of  the  undertaking 
for  which  the  power  of  eminent  domain  is  exercised.'*     It  must  be  said, 

1  A  case  of  this  sort  is  Cotton  vs.  Miss.  &  Boom  Co.,  22  Minn.  372,  where  a  law  giving 
a  boom  company  on  the  Mississippi  River  the  right  to  condemn  riparian  rights  was  held 
to  be  constitutional. 

2  A  good  example  of  this  class  is  Healy  Lumber  Company  vs.  Morris,  33  Wash.  4Q0,  where 
an  act  of  the  legislature  granting  the  right  to  condemn  property  for  a  lumber  road  or  flume 
was  held  unconstitutional. 

3  See  e.g.  Matter  of  Eureka  Basin  &  Mfg.  Co.,  g6  N.Y.  42  ;  see  also  Missouri  Ry.  Co. 
vs.  Nebraska,  164  U.S.  403,  which  held  unconstitutional  as  using  the  power  of  eminent  domain 
for  a  private  purpose  an  act  of  a  state  legislature  obliging  a  railway  company  to  permit 
private  persons  to  build  a  private  grain  elevator  on  its  right  of  way. 

^  See  e.g.  The  Hand  Gold  Mining  Company  vs.  Parker,  50  Ga.  419.  In  this  case  an  act 
was  held  constitutional  which  gave  a  mining  company  the  right  on  payment  of  daniages  to 
construct  a  flume  or  aqueduct  over  vacant  lands  in  a  specified  county.  The  court  justified 
its  decision  partly  by  the  consideration  that  "the  increased  production  of  gold  from  the 
mines  of  Lumpkin  County  by  the  means  as  provided  for  in  the  defendant's  charter,  must 
necessarily  be  for  the  public  good,  inasmuch  as  it  will  increase  for  the  use  of  the  public  a 
safe,  sound,  constitutional  circulating  medium,  which  is  of  vital  importance  to  the  perma- 
nent welfare  and  prosperity  of  the  people  of  the  State  of  Georgia  as  well  as  of  the  people 
of  the  United  States."  See  also  New  Central  Coal  Co.  vs.  Granges  Creek  Co.,  37  Md.  557  ; 
and  Turner  vs.  Nye,  154  Mass.  579  where  a  statute  was  held  constitutional  which  permitted 


COMMERCE  AND   INDUSTRY  521 

however,  that  apart  from  the  Mill  Act  cases,  these  cases  are  very 
few  in  number.  There  are  also  other  similar  cases  based  on  peculiar 
provisions  of  the  state  constitutions  which,  like  the  constitution  of 
Colorado,  specifically  declare  some  particular  occupation  like  mining 
to  be  a  public  one. 

Such,  however,  is  the  doctrine  which  the  Supreme  Court  of  the 
United  States  applies  to  the  decision  whether  under  the  fourteenth 
amendment  a  given  purpose  is  a  proper  one  for  the  exercise  of  the 
right  of  eminent  domain.  This  practical  result  was  reached  as  far 
back  as  1884  in  Head  vs.  Amoskeag  Mfg.  Co.,^  when  the  court,  follow- 
ing the  rule  adopted  in  the  New  England  States,  based  its  decision 
that  a  mill  act  affecting  merely  private  mills  was  constitutional  on 
the  ground  that  such  a  statute  maybe  "considered  as  regulating  the 
manner  in  which  the  rights  of  proprietors  of  lands  adjacent  to  a  stream 
may  be  asserted  and  enjoyed  with  a  due  regard  to  the  interests  of  all 
and  the  public  good."  The  court  in  this  case  did  not  seem  to  think 
its  decision  required  a  consideration  of  what  it  called  "the  important 
and  far-reaching  question"  whether  the  Mill  Acts  authorize  a  taking 
of  pri\^ate  property  for  public  use.  In  a  later  case,  however,  decided 
in  1904,  viz.  Clark  vs.  Nash,^  the  court  adopted  the  view  that  the 
grant  by  an  act  of  the  legislature  to  an  individual  of  the  right  to  con- 
demn land  for  the  purpose  of  a  ditch  to  be  used  to  convey  water  for 
either  irrigation  or  mining  was  constitutional  under  the  conditions 
present  in  the  particular  case.  The  most  important  fact  which  in- 
fluenced the  court  would  appear  to  have  been  the  aridity  of  the  region 
and  the  impossibility  of  the  development  of  the  resources  of  the  state, 
viz.  Utah,  if  the  act  were  held  unconstitutional.  The  court  reiterates 
the  statement  it  made  in  the  Fallbrook  Irrigation  case  that  in  the  de- 
termination of  these  questions  it  must  rely  very  largely  on  the  decision 
of  the  legislature  and  courts  of  the  state  in  which  the  case  arises,  as 
to  the  necessity  or  expediency  of  the  legislation  attacked. 

In  Strickland  vs.  Highland  Boy  Mining  Co.^  the  Supreme  Court 
reaffirmed  Clark  vs.  Nash  and  upheld  the  exercise  of  the  right  of 
eminent  domain  for  the  purpose  of  an  aerial  railway  to  be  used  by  a 
mine.     It  says  of  Clarke  vs.  Nash  that 

in  discussing  what  constitutes  a  public  use  it  recognized  the  inadequacy  of 
use  by  the  general  public  as  a  universal  test.  While  emphasizing  the  great 
caution  necessary  to  be  shown  it  proved  that  there  might  be  exceptional 
times  and  places  in  which  the  very  foundations  of  public  welfare  could  not 
be  laid  without  requiring  concessions  from  individuals  to  each  other  upon 

one  person  for  purposes  of  private  fish  culture  to  flood  lands  of  another  on  the  theory  that 
the  legislature  could  regulate  the  rights  of  owners  of  lands  so  as  to  provide  for  the  most 
advantageous  use  thereof,  even  where  one  owner  might  as  a  result  of  the  act  be  deprived 
of  the  title  to  his  property  against  his  will  but  upon  compensation. 

1  113  U.S.  9.  2  ig8  U.S.  361.  8  200  U.S.  527. 


52  2  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

due  compensation  which  under  other  circumstances  would  be  left  wholly 
to  voluntary  consent.  In  such  unusual  circumstances  there  is  nothing  in 
the  fourteenth  amendment  which  prevents  a  state  from  requiring  such 
concessions.^ 

Perhaps  the  farthest  the  Supreme  Court  has  gone  in  upholding 
the  exercise  of  the  power  of  eminent  domain  by  a  state  is  in  Offield  vs. 
New  York,  New  Haven  &  Hartford  Railroad.-  In  this  case  the  court 
upheld  a  state  law,  authorizing  a  railway  company  which  owns  more 
than  three  fourths  of  the  capital  stock  of  any  other  railroad  corpora- 
tion, and  which  "cannot  agree  with  the  holders  of  outstanding  stock 
for  the  purchase  of  the  same,  upon  a  finding  by  a  judge  of  the  Superior 
Court  that  such  purchase  will  be  for  the  public  interest"  to  "cause 
such  outstanding  stock  to  be  appraised."  The  act  provided  further 
that  when  the  amount  of  such  appraisal  shall  have  been  paid  or  de- 
posited the  stockholder  or  stockholders  whose  stock  shall  have  been 
so  appraised  shall  cease  to  have  any  interest  therein  and  shall  on 
demand  surrender  all  certificates  for  such  stock  with  duly  executed 
powers  of  attorney  for  transfer  thereon  to  the  corporation  applying 
for  such  appraisal.  The  court  held  that  this  statute  did  not  deprive 
the  stockholder  of  his  property  without  due  process  of  law  and  did 
not  impair  the  obligation  of  a  contract  in  that  it  abrogated  the  lease 
of  one  railroad  by  the  other,  since  whatever  value  the  lease  gave  the 
shares  of  stock  would  be  represented  in  their  appraisement. 

The  power  of  the  state  notwithstanding  the  fourteenth  amendment 
to  deprive  a  person  of  his  property  even  without  direct  compensation, 
where  the  public  good  would  seem  to  require  it  is  also  recognized  in  a 
recent  case,^  which  upheld  a  state  law  making  pro\dsion  for  a  bank 
depositors'  guaranty  fund.  This  fund  was  formed  from  assessments 
levied  upon  all  state  banks  to  the  extent  of  one  per  cent  of  their  de- 
posits, and  in  case  the  cash  of  an  insolvent  bank  immediately  avail- 
able was  not  sufficient  to  pay  depositors  in  full  the  state  authorities 
were  to  withdraw  from  the  fund  and  from  additional  assessments  if 
required  the  amount  needed  to  make  up  the  deficiency.  It  was  ob- 
jected to  this  law  that  it  deprived  persons  of  their  property  without 
due  process  of  law  by  taking  private  property  for  private  use  without 
compensation.  In  answer  to  this  objection,  the  court,  Mr.  Justice 
Holmes  delivering  the  opinion,  says : 

In  the  first  place  it  is  established  by  a  series  of  cases  that  an  ulterior 
public  advantage  may  justify  a  comparatively  insignificant  taking  of  private 
property  for  what  in  its  immediate  purpose  is  a  private  use  [citing  the  cases 

1  See  also  Byrnes  vs.  Douglas,  27  C.  C.  A.  399,  where  the  condemnation  of  property  for 
a  tunnel  for  a  mine  was  held  perfectly  proper  though  without  any  consideration  of  the  con- 
stitutionality of  the  proceeding  from  the  view-point  of  the  fourteenth  amendment. 

2  203  U.S.  372. 

3  Noble  State  Bank  vs.  HaskeU,  31  S.  C.  R.  186. 


COMMERCE  AND   INDUSTRY  523 

just  referred  to]  and  in  the  next  it  would  seem  that  there  may  be  other 
cases  beside  the  everyday  one  of  taxation,  in  which  the  share  of  each  party 
in  the  benefit  of  a  scheme  of  mutual  protection  is  sufficient  compensation 
for  the  correlative  burden  that  it  is  compelled  to  assume.  See  Ohio  Oil  Co. 
vs.  Indiana,  177  U.S.  190.^ 

In  all  these  cases  both  in  the  state  courts  and  in  the  Supreme  Court 
of  the  United  States,  it  will  be  noted  that  the  consideration  appealing 
with  particular  force  to  the  courts  was  the  necessity  of  extending  the 
conception  of  public  purpose  at  the  expense  of  rights  in  private 
property  in  order  to  secure  the  most  advantageous  development  of 
the  natural  resources  of  the  region.  In  New  England  this  has  con- 
sisted for  the  most  part  in  the  development  of  water  power  for  manu- 
facturing purposes.  In  the  arid  or  mountainous  regions  of  the  West 
and  middle  West  it  has  consisted  in  the  development  of  the  agricul- 
tural or  mining  industries.  In  none  of  these  cases  has  the  question 
been  raised  whether  in  the  conditions  of  economic  inequality  incident 
to  industrial  and  urban  life  the  character  of  the  purpose  for  which  the 
right  of  eminent  domain  may  be  exercised  may  be  influenced  by 
those  conditions,  whether,  in  other  words,  the  power  may  be  used  in 
order  to  secure  not  more  effective  production  but  more  economic 
equality,  i.e.  more  equality  in  cHstribution  or  opportunity. 

The  question  here,  as  before,  whether  the  Supreme  Court  will  give 
the  same  effect  to  the  peculiar  economic  conditions  which  are  developed 
by  our  industrial  ci\alization  as  it  recognizes  should  be  given  to  the 
peculiar  economic  conditions  resulting  from  climatic  and  geographical 
situation,  is  one  to  which  no  certain  answer  can  be  given.  But  if  it 
should  recognize  that  economic  or  social  conditions  are  to  have  the 
same  effect  as  climatic  conditions,  it  can  hardly  be  doubted  that  it 
would  consider  the  power  of  eminent  domain  as  used  for  a  public 
purpose  where  it  was  used  in  such  conditions  of  population  congestion 
as  exist,  e.g.,  in  the  city  of  New  York  to  provide  homes  for  the  poorer 
classes  in  the  community  either  at  a  moderate  rental,  or  at  a  price 
and  under  such  conditions  of  sale  as  would  enable  the  needy  classes  to 
acquire  homes.  If  an  intimate  connection  can  be  shown  between 
the  enterprise  for  the  purpose  of  which  the  power  is  exercised  and  the 
public  health,  an  additional  reason  for  upholding  the  constitutionality 
of  the  enterprise  is  of  course  secured.  For  considerations  of  health 
are  very  apt  to  control  the  decision  of  the  court. 

1  Another  interesting  expression  by  the  Supreme  Court  of  its  opinion  as  to  the  effect 
of  the  fourteenth  amendment  on  the  power  of  the  states  is  to  be  found  in  Interstate  &c. 
Railway  Company  vs.  Commonwealth,  207  U.S.  79,  87,  where  Mr.  Justice  Holmes  says: 
"If  the  fourteenth  amendment  is  not  to  be  a  greater  hamper  upon  the  established  practices 
of  Stales  in  common  with  other  governments  than  I  think  was  intended,  they  must  be 
allowed  a  certain  latitude  in  the  minor  adjustments  of  life  even  though  by  their  action  the 
burdens  of  a  part  of  the  community  are  somewhat  increased.  The  traditions  and  habits 
of  centuries  were  not  intended  to  be  overthrown  when  that  amendment  was  passed." 


524  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

Intimately  connected  with  this  question  is  the  question  whether 
in  order  more  effectively  to  carry  out  some  local  improvement  or  in 
order  to  participate  in  the  increase  in  the  value  of  the  land  due  to  the 
new  improvement,  a  city,  e.g.,  may  be  authorized  to  condemn  a  larger 
amount  of  land  than  is  absolutely  necessary  for  the  purposes  of  the 
specific  improvement.  This  is  what  is  known  popularly  as  excess 
condemnation.  This  method  is  adopted  in  Germany  and  has  been 
applied  also  in  a  few  specific  instances  in  England.  It  has  rarely, 
however,  been  resorted  to  in  the  United  States  in  such  a  manner  as 
to  make  an  adjudication  upon  the  question  at  issue  necessary,  and  as 
a  result  there  are  few  cases  exactly  in  point. 

There  are,  however,  a  number  of  cases  which  hold  that  a  city,  which 
with  the  intention,  e.g.,  of  making  a  park,  has  obtained  land  by  the 
exercise  of  the  right  of  eminent  domain,  and  finds  that  it  has  more 
land  on  its  hands  than  is  necessary,  may  sell  such  lands  to  private 
persons.^  These  cases  may  not,  however,  be  regarded  as  authorities 
for  the  general  proposition  that  the  legislature  may  provide  for  excess 
condemnation  with  the  direct  intention  of  using  the  excess  condemned 
for  a  private  purpose.  Thus,  in  the  Matter  of  the  City  of  Rochester 
the  court  distinctly  says  in  speaking  of  an  act  of  the  legislature  which 
authorized  the  Park  Commissioners  of  the  city  to  sell  at  auction  lands 
acquired  by  condemnation  for  a  park  which  such  commissioners  should 
determine  were  not  necessary  for  park  purposes : 

It  is  claimed  that  this  provision  is  in  conflict  with  the  provision  of  the 
constitution  respecting  the  taking  of  private  property  for  pubhc  use,  as  it 
in  fact  authorizes  the  city  to  take  it  for  a  purpose  not  public.  We  think 
the  objection  without  merit  or  substance.  Of  course  the  city  would  not 
take  private  property  for  the  purpose  of  selling  or  dealing  in  it,  but  having 
once  acquired  it  for  a  park  and  it  becoming,  in  the  course  of  time,  unneces- 
sary or  useless  for  that  purpose  by  the  growth  of  the  city  or  other  changes 
in  situation,  a  sale  in  the  manner  prescribed  by  the  statute  would  be  within 
the  legitimate  functions  of  the  city  as  a  municipal  corporation  and  power 
to  that  end  conferred  by  the  state  at  any  time  or  in  the  act  authorizing  the 
taking  cannot  invalidate  the  delegated  right  to  exercise  the  right  of  eminent 
domain. 

Furthermore,  the  question  would  appear  to  have  been  decided 
against  the  constitutionality  of  taking  by  condemnation  any  land  in 
amount  in  excess  of  what  is  required  for  public  purposes  by  Embury 
vs.  Conner.2  It  may  therefore  be  said  that  excess  condemnation  is 
improper  under  the  ordinary  limitations  of  the  state  constitution. 
The  very  general  belief  that  excess  condemnation  is  unconstitutional 
under  the  state  constitutional  provisions  is  probably  responsible  for 

>  Brooklyn  Park  Com.  vs.  Armstrong,  45  N.Y.  70 ;  Matter  of  the  City  of  Rochester,  127 
N.Y.  243- 

23  N.Y.  511. 


COMMERCE   AND   INDUSTRY  525 

the  fact  that  we  have  no  decisions  of  the  United  States  Supreme 
Court  on  the  question. 

It  is,  however,  to  be  noticed  that  the  same  reasons  which  have  led 
the  Supreme  Court  of  the  United  States  to  uphold  the  constitution- 
ality of  the  Mill  Acts  and  other  similar  legislation,  viz.  the  desirability 
of  permitting  the  power  of  the  government  to  be  so  applied  as  to  bring 
about  the  most  profitable  use  of  economic  resources,  would  be  present 
in  the  case  of  attempts  upon  the  part  of  city  governments,  e.g.,  to 
condemn  an  amount  of  land  in  excess  of  what  was  needed  for  a  partic- 
ular improvement.  For  in  many  cases  it  is  only  through  such  action 
that  a  city  can  most  economically  carry  out  its  plan. 

There  is  then  considerable  justification  for  the  belief  that  our  con- 
stitutional limitations  are,  if  liberally  interpreted,  not  a  serious 
obstacle  to  the  adoption  of  most  of  the  measures  which  are  being  put 
into  force  by  modern  governments  for  the  aid  of  the  needy  classes. 
The  only  point  in  which  great  doubt  may  be  felt  is  as  to  the  power 
of  taxation  whose  use  for  anything  but  a  distinctly  public  purpose 
has  met  with  the  disapproval  of  the  courts. 

THE  REGULATION  OF   RAILWAY   RATES   UNDER  THE 
FOURTEENTH  AMENDMENT  ^ 

By    J.    F.    SWAYZE    OF   THE    SUPREME    CoURT    OF    NeW    JeRSEY 
From  the  Quarterly  Journal  of  Economics,  May,  191 2 


In  1873  the  Supreme  Court  of  the  United  States,  in  the  first  deci- 
sion ^  that  involved  the  construction  of  the  Fourteenth  Amendment, 
limited  its  application  in  a  way  that  must  have  surprised  both  those 
who  had  advocated  and  those  who  had  opposed  its  adoption  on  the 
floor  of  Congress.  The  court  held  that  the  privileges  and  immunities 
of  citizens  of  the  United  States  protected  by  the  amendment  were 
not  the  general  privileges  and  immunities  of  citizens,  but  only  those 
special  privileges  and  immunities  that  belonged  to  citizens  of  the 
United  States  as  such,  —  the  right  to  come  to  the  seat  of  government, 

1  This  paper  gives  the  substance  of  lectures  delivered  at  Harvard  University  on  the  Four- 
teenth Amendment. 

2  Slaughter  House  Cases,  i6  Wallace,  36. 

It  may  not  be  amiss  to  quote  the  language  of  that  part  of  the  first  section  of  the  Four- 
teenth Amendment  which  is  here  under  consideration : 

"No  state  shall  make  or  enforce  any  law  which  shall  abridge  the  privileges  or  immuni- 
ties of  citizens  of  the  United  States;  nor  shall  any  state  deprive  any  person  of  life,  liberty, 
or  property  without  due  process  of  law;  nor  deny  to  any  person  within  its  jurisdiction 
the  equal  protection  of  the  laws." 

The  reader  need  hardly  be  reminded  that  this  Amendment  was  made  after  the  Civil 
War,  being  ratified  in  1868. 


526    TENDENCIES  TOWARD   FEDERAL   CONTROL  OF 

to  assert  claims  against  the  national  government,  to  transact  business 
with  it,  to  seek  its  protection,  to  share  its  offices,  to  have  free  access 
to  its  seaports,  subtreasuries,  land  offices,  and  the  courts  of  justice  of 
the  several  states,  to  demand  its  care  and  protection  over  life,  liberty, 
and  property  when  on  the  high  seas  or  in  the  jurisdiction  of  a  foreign 
government,  to  assemble  and  petition  for  redress  of  grievances,  and 
to  have  the  writ  of  habeas  corpus ;  to  use  the  navigable  waters  of  the 
United  States,  and  to  enjoy  all  rights  secured  by  treaty  with  foreign 
nations,  to  change  citizenship  from  one  state  to  another  with  the 
same  rights  as  other  citizens  of  that  state.  Important  as  these  rights 
are,  they  are  not  the  ordinary  everyday  rights  that  closely  affect  the 
citizen.  For  these  he  was  left  to  the  protection  of  the  states.  Though 
the  actual  decision  related  only  to  one  clause  of  the  amendment,  the 
opinion  of  Mr.  Justice  Miller,  who  spoke  for  the  court,  intimated 
strongly  that  the  clause  forbidding  the  states  to  deprive  any  person 
of  life,  liberty,  and  property  without  due  process  of  law,  and  to  deny 
to  any  person  within  its  jurisdiction  the  equal  protection  of  the  laws, 
was  intended  to  protect  against  unjust  discrimination  the  negro  race 
only. 

Three  years  later,  however,  in  the  Granger  Cases  ^  (1876),  it  was 
taken  for  granted  that  the  scope  of  the  latter  clause  of  the  amendment 
was  broader,  and  that  it  protected  not  merely  those  of  the  negro  race, 
but  all  persons.  The  court  in  fact  followed  the  dissenting  opinions 
of  Justices  Field  and  Bradley,  not  the  dictum  of  the  prevailing  opinion 
of  Justice  Miller. 

The  Granger  Cases  settled  the  authority  of  the  state  legislatures 
to  control  the  charges  of  a  business  affected  with  a  public  interest. 
Some  of  the  language  used  by  the  court  went  far  in  denying  any  right 
of  the  court  to  interfere.  It  was  said  distinctly  that  though  the  power 
conceded  to  the  legislature  was  liable  to  be  abused,  the  people  must 
resort  for  protection  against  abuses  to  the  polls  and  not  to  the  courts. 
It  was  conceded  that  under  some  circumstances,  but  not  under  all, 
statutory  regulations  might  deprive  the  owner  of  his  property  with- 
out due  process  of  law ;  but  it  was  held  that  the  amendment  did  not 
change  the  law;  "it  simply  prevents  the  States  from  doing  that 
which  will  operate  as  such  a  deprivation." 

The  question  of  rates  seemed  by  these  decisions  determined  to  be 
a  legislative,  not  a  judicial  question.  Six  years  later,^  the  court  held 
that  a  railroad  company,  whose  board  of  directors  was  by  the  charter 
authorized  to  establish  rates,  could  not,  as  against  a  general  law  of 
the  state,  exact  more  than  three  cents  per  mile  per  passenger.     The 

^Munn  vs.  Illinois,  94  U.S.  113.  [1877.]  Chicago,  B.  &  Q.  R.R.  Co.  vs.  Iowa,  94  U.S. 
155.  Peik  vs.  Chicago  and  N.  W.  Railway  Co.,  Lawrence  vs.  Same,  94  U.S.  164.  Chicago, 
W.  &  St.  C.  R.R.  Co.  vs.  Ackley,  94  U.S.  179.  Winona  &  St.  Peter  R.R.  Co.  vs.  Blake, 
94  U.S.  180.     Stone  vs.  Wisconsin,  94  U.S.  181. 

2  Ruggles  vs.  Illinois,  108  U.S.  526.     [1883.] 


COMMERCE  AND  INDUSTRY  527 

reasoning  was  put  on  a  narrow  basis,  involving  only  the  construction 
of  the  charter.  The  power  granted  was  to  determine  the  rates  by 
by-laws ;  the  power  to  pass  by-laws  was  limited  to  such  as  were  not 
repugnant  to  the  laws  of  the  state,  and  hence  it  was  held  that  the 
by-laws  could  not  fix  a  greater  rate  than  was  permitted  by  the  general 
legislation;  "grants  of  immunity  from  legitimate  control,"  said  the 
Chief  Justice,  "are  never  to  be  presumed." 

The  states  soon  began  to  avail  themselves  of  the  power  to  control 
business  affected  with  a  public  interest.  The  first  important  case 
concerning  the  limitation  of  their  powers  arose  in  California.^  It 
decided  that  the  rates  of  a  water  company  might  be  fixed  by  a  county 
board  in  which  the  water  company  was  not  represented,  although  the 
charter  of  the  company  provided  for  its  representation.  The  court 
expressly  reserved  the  question  what  might  be  done  in  case  the  munic- 
ipal authorities  did  not  exercise  an  honest  judgment  or  fixed  a  price 
manifestly  unreasonable.  Two  years  later,^  it  was  decided  that  rail- 
road charges  might  be  fixed  by  a  Railroad  Commission,  although 
charters  provided  that  the  companies  themselves  might  fix  the  tolls 
and  charges.  The  legislature  of  Mississippi,  by  legislation  subse- 
quent to  the  charters,  created  a  Railroad  Commission  with  power  to 
revise  rates  and  increase  or  reduce  them  as  experience  and  business 
operation  might  show  to  be  just.  It  was  argued  that  the  legislature 
by  the  provision  in  the  charters  had  surrendered  the  power  of  control 
over  fares  and  freights.  It  was  conceded  that  the  rates  must  by  the 
rule  of  the  common  law  be  reasonable,  and  the  court  held  that  the 
state  was  left  free  to  act  on  the  subject  of  reasonableness  within  the 
limits  of  its  general  authority  as  circumstances  might  require.  "The 
right  to  fix  reasonable  charges  has  been  granted,"  said  Chief  Justice 
Waite,  "but  the  power  of  declaring  what  shall  be  deemed  reasonable 
has  not  been  surrendered.  If  there  had  been  an  intention  of  sur- 
rendering this  power,  it  would  have  been  easy  to  say  so ;  not  having 
said  so,  the  conclusive  presumption  is  there  was  no  such  intention." 
The  court,  however,  was  careful  to  guard  against  an  inference  that 
the  power  of  regulation  was  without  limit.  "The  power  to  regulate," 
it  was  said,  "is  not  a  power  to  destroy,  and  limitation  is  not  the 
equivalent  of  confiscation.  Under  pretense  of  regulating  fares  and 
freights,  the  State  cannot  require  a  railroad  corporation  to  carry  per- 
sons or  property  without  reward;  neither  can  it  do  that  which  in 
law  amounts  to  a  taking  of  private  property  for  public  use  without 
just  compensation,  or  without  due  process  of  law." 

The  statute  was  held  not  to  be  in  conflict  with  the  due  process  clause 
and  the  equal  protection  clause  of  the  Fourteenth  Amendment. 
"General  statutes  fixing  maximum  rates,"  it  was  said,  "do  not  neces- 

»  Spring  Valley  Water  Works  vs.  Schottler,  no  U.S.  347-     [1884.] 
2  Railroad  Commission  Cases,  116  U.S.  307.     [18S6.] 


528    TENDENCIES  TOWARD   FEDERAL  CONTROL  OF 

sarily  deprive  the  railroad  company  of  its  property  contrary  to  the 
amendment."  The  importance  of  the  qualifying  word  "necessarily" 
appeared  in  subsequent  decisions  when  it  was  held  that  such  statutes 
might  sometimes  be  void.  The  decisions  thus  far  were  in  favor  of 
public  control,  and  against  review  by  the  courts. 

II 

Four  years  later,  in  the  Minnesota  Rate  Cases,^  the  court  took  a 
position  hard  to  reconcile  with  what  was  said  in  Munn  vs.  Illinois  and 
the  succeeding  cases.  The  Minnesota  Commission  had  ordered  a  re- 
duction of  rates  for  transportation  of  milk  from  three  cents  to  two 
and  a  half  cents  a  gallon  ;  and  for  switching  cars  from  $1.25  and  Si. 50 
per  car  to  $1.00  per  car.  The  railroads  resisted  and,  upon  application 
to  the  state  courts,  a  mandamus  was  issued  to  put  in  force  the  rates 
fixed  by  the  commission.  The  Supreme  Court  reversed  this  action. 
Justice  Blatchford  rested  the  reversal  upon  the  fact  that  the  decision 
of  the  railroad  commission  was  made  a  finality  under  Minnesota  law ; 
he  said  that  the  commission  could  not  be  regarded  as  clothed  with 
judicial  functions  or  possessing  the  machinery  of  a  court  of  justice. 
"The  question  of  the  reasonableness  of  a  rate  of  charge  for  transpor- 
tation by  a  railroad  company,  involving  as  it  does  the  element  of 
reasonableness  both  as  regards  the  company  and  as  regards  the  public, 
is  eminently  a  question  for  judicial  investigation,  requiring  due  process 
of  law  for  its  determination.  If  the  company  is  deprived  of  the 
power  of  charging  reasonable  rates  for  the  use  of  its  property,  and 
such  deprivation  takes  place  in  the  absence  of  an  investigation  by 
judicial  machinery,  it  is  deprived  of  the  lawful  use  of  its  property  and 
thus  in  substance  and  effect,  of  the  property  itself,  without  due 
process  of  law  and  in  violation  of  the  Constitution  of  the  United 
States ;  and  in  so  far  as  it  is  thus  deprived,  while  other  persons  are 
permitted  to  receive  reasonable  profits  upon  their  invested  capital, 
the  company  is  deprived  of  the  equal  protection  of  the  laws." 

The  court  seemed  by  this  language  to  decide  that  the  question  of 
rates  was  always  a  judicial  question,  and  not,  as  had  been  held  before 
and  has  been  held  since,  a  legislative  question  ;  that  it  could  therefore 
be  settled  by  a  judicial  tribunal  only ;  that  if  a  railroad  company  was 
not  allowed  to  charge  reasonable  rates,  its  constitutional  rights  were 
violated ;  and  that  it  was  entitled  to  reasonable  profits  in  the  same 
sense  as  other  persons  not  engaged  in  a  public  calling.  It  is  difficult 
to  see  how  the  right  to  profit  as  individuals  not  engaged  in  a  public 
calling  can  be  consistent  with  the  right  of  the  state  to  regulate  the 
rates  of  those  engaged  in  such  a  calling.     The  opinion,  carried  to  its 

1  Chicago,  M.  &  St.  P.  Railway  Co.  vs.  Minnesota,  134  U.S.  418.  [1890.]  Minneapolis 
Eastern  Railway  Co.  vs.  Minnesota,  134  U.S.  467.     [1890.] 


COMMERCE  AND   INDUSTRY  529 

logical  conclusion,  would  substitute  the  courts  for  the  commission  as 
final  arbiter ;  and  in  effect  would  throw  the  whole  burden  of  rate 
making  upon  the  judicial  machinery.  No  wonder  the  opinion  did  not 
command  the  unanimous  voice  of  the  court.  Justice  Miller  concurred 
in  the  result,  but  upon  the  ground  that  the  commission  had  applied 
to  the  courts  to  enforce  their  order ;  that  in  substance  this  was  ask- 
ing the  courts  to  determine  that  the  order  was  reasonable,  and  hence 
the  court  had  the  right  and  duty  to  inquire  into  the  reasonableness 
of  the  tarilT  of  rates. 

Justice  Bradley,  speaking  for  himself  and  Justices  Gray  and  Lamar, 
dissented.  He  pointed  out  that  the  decision  practically  overruled 
Munn  vs.  Illinois  and  the  railroad  cases  decided  with  it ;  that  the 
question  of  the  reasonableness  of  a  charge,  so  far  from  being  a  judicial 
question,  was  preeminently  a  legislative  one  involving  considerations 
of  policy  as  well  as  of  remuneration ;  that  in  practice  it  had  usually 
been  determined  by  the  legislature  by  fixing  a  maximum  in  the  charter 
of  the  company  or  afterwards  if  there  were  no  binding  contract ;  that 
the  question  only  became  judicial  when  the  legislature  enacted  simply 
that  rates  should  be  reasonable,  thus  necessarily  submitting  the 
question  what  was  in  fact  reasonable  to  the  judicial  tribimals ;  but 
that  the  legislature  might  itself  or  by  its  commission  fix  the  rates ; 
and  that  for  that  purpose  their  decision  was  final,  unless  they  so  acted 
as  to  deprive  parties  of  their  property  without  due  process  of  law ; 
but  that  a  mere  difference  of  judgment  as  to  amount  between  the 
commission  and  the  companies  without  any  indication  of  intent  on 
the  part  of  the  commission  to  do  injustice,  did  not  amount  to  a  depri- 
vation of  property.  The  real  difference  between  Justice  Blatchford 
and  Justice  Bradley  was  as  to  the  question  presented  in  a  rate  case. 
According  to  the  former  it  was :  "is  the  rate  a  reasonable  one,  and  such 
as  would  aft'ord  the  same  profit  as  could  be  realized  by  one  not  sub- 
ject to  regulation  ?  "  According  to  the  latter  it  was :  "is  the  rate  so 
unreasonable  as  to  be  arbitrary  and  amount  to  confiscation  of  property 
rather  than  mere  regulation  of  a  rate  ?  "  The  difference  is  striking  and 
fundamental.  If  the  legislature  had  the  right  to  regulate  rates,  as 
had  been  settled  in  the  Granger  cases,  then  the  property  of  the  rail- 
roads was  qualified  by  that  public  right,  and  there  could  be  no  depri- 
vation of  such  qualified  property  as  long  as  the  legislature  confined 
itself  to  fair  regulation  and  did  not  undertake  to  confiscate  under  the 
guise  of  regulation.     The  view  of  the  minority  has  finally  prevailed.^ 

Justice  Bradley  in  the  course  of  his  opinion  took  occasion  to  speak 
of  the  relations  between  the  courts  and  the  legislature.  His  words 
are  worth  quoting:  "It  is  always  a  delicate  thing  for  the  courts  to 
make  an  issue  with  the  legislative  department  of  the  government, 
and  they  should  never  do  so  if  it  is  possible  to  avoid  it.     By  the 

'Atlantic  Coast  Line  vs.  No.  Car.  Corp.  Comm..  206  U.S.  1.     [igo7.] 


530  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

decision  now  made  we  declare,  in  effect,  that  tKe  judiciary,  and  not  the 
legislature  is  the  final  arbiter  in  the  regulation  of  fares  and  freights  of 
railroads  and  the  charges  of  other  public  accommodations.  It  is  an 
assumption  of  authority  on  the  part  of  the  judiciary,  which,  it  seems 
to  me,  with  all  due  deference  to  the  judgment  of  my  brethren,  it  has  no 
right  to  make." 

The  decision  of  the  court  in  the  Minnesota  Rate  Cases,  it  was  further 
pointed  out,  gave  a  new  extension  to  the  meaning  of  the  words  "due 
process  of  law."  Justice  Blatchford's  language  must  mean  that  due 
process  of  law  requires  judicial  procedure  "with  the  forms  and  ma- 
chinery," to  quote  his  language,  "provided  by  the  wisdom  of  succes- 
sive ages  for  the  investigation  judicially  of  the  truth  of  a  matter  in 
controversy."  Long  before  this  decision  the  court  had  held  in  an 
elaborate  opinion  by  Mr.  Justice  Curtis  ^  that  the  same  words  in  the 
Fifth  Amendment  did  not  necessarily  imply  a  regular  proceeding  in  a 
court  of  justice  or  after  the  manner  of  such  courts ;  and  this  view  had 
been  adopted  and  applied  in  the  construction  of  the  Fourteenth 
Amendment.  The  difficulty  of  Mr.  Justice  Blatchford's  view  becomes 
apparent  if  it  is  applied  to  the  taking  of  the  property  of  the  citizen 
by  taxation,  by  assessments  for  public  improvements,  or  by  adminis- 
trative measures  under  the  police  power ;  or  to  restraint  of  the  person 
made  necessary  by  our  immigration  laws.  "  In  judging  what  is  due 
process  of  law,"  said  Mr.  Justice  Bradley,  "respect  must  be  had  to  the 
cause  and  object  of  the  taking,  whether  under  the  taxing  power,  the 
power  of  eminent  domain,  or  the  power  of  assessment  for  local  im- 
provements, or  none  of  these :  and  if  found  to  be  suitable  or  admis- 
sible in  the  special  case,  it  will  be  adjudged  to  be  due  process  of  law, 
but  if  found  to  be  arbitrarv,  oppressive  and  unjust,  it  may  be  declared 
to  be  not  '  due  process  of  law.' " 

The  decision  in  the  Minnesota  Rate  Case  ine\atably  led  to  repeated 
efforts  to  secure  review  by  the  courts  of  rates  fixed  by  statute,  or  the 
orders  of  public  commission. 

After  an  unsuccessful  effort  by  a  friendly  litigation  to  have  a  partic- 
ular rate  declared  unreasonable,^  the  question  next  arose  in  the  great 
case  of  Reagan  vs.  Farmers'  Loan  &  Trust  Co.,^  noteworthy  because  it 
was  the  first  successful  effort  to  enjoin  the  enforcement  of  rates  fixed 
by  a  commission. 

The  question  was  squarely  raised,  for  the  defendant  denied  the 
power  of  the  court  to  entertain  the  inquiry  at  all,  and  insisted  that 
the  fixing  of  rates  for  carriage  by  a  public  carrier  was  a  matter  wholly 
within  the  power  of  the  legislative  department  of  the  government 
and  beyond  examination  by  the  courts.     To  this  the  court,  through 

1  Murray's  Lessee  vs.  Hoboken  Land  and  Improvement  Co.,  i8  How.  272.     [1856.] 
'  Chicago  &  Grand  Trunk  Railway  Co.  vs.  Wellman,  143  U.S.  339.     [1892.] 
3 154  U.S.  362.     [1894] 


COMMERCE  AND  INDUSTRY  531 

Mr.  Justice  Brewer,  answered:  "The  pro\ince  of  the  courts  is  not 
changed,  nor  the  limit  of  judicial  inquiry  altered,  because  the  legisla- 
ture instead  of  the  carrier  prescribes  the  rates.  The  courts  are  not 
authorized  to  re\dse  or  change  the  body  of  rates  imposed  by  a  legisla- 
ture or  a  commission ;  they  do  not  determine  whether  one  rate  is 
preferable  to  another,  or  what  under  all  circumstances  would  be 
fair  and  reasonable  as  between  the  carriers  and  the  shippers ;  they  do 
not  engage  in  any  mere  administrative  work ;  but  still  there  can  be 
no  doubt  of  their  power  and  duty  to  inquire  whether  a  body  of  rates 
prescribed  by  a  legislature  or  a  commission  is  unjust  and  unreason- 
able, and  such  as  to  work  a  practical  destruction  to  rights  of  prop- 
erty, and  if  found  so  to  be,  to  restrain  its  operation." 

The  complainants  challenged  the  tariff  as  a  whole  and  the  court's 
inquiry  was  limited  to  its  effect  as  a  whole.  The  facts  were  thus  stated 
by  the  court : 

The  cost  of  this  railroad  property  was  $40,000,000 ;  it  cannot  be  replaced 
to-day  for  less  than  $25,000,000.  There  are  $15,000,000  of  mortgage  bonds 
outstanding  against  it,  and  nearly  $10,000,000  of  stock.  These  bonds  and 
stock  represent  money  invested  in  the  construction  of  this  road.  The 
owners  of  the  stock  have  never  received  a  dollar's  worth  of  dividends  in 
return  for  their  investment.  The  road  was  thrown  into  the  hands  of  a 
receiver  for  default  in  payment  of  the  interest  on  the  bonds.  The  earnings 
for  the  last  three  years  prior  to  the  establishment  of  these  rates  were  in- 
sufficient to  pay  the  operating  expenses  and  the  interest  on  the  bonds.  In 
order  to  make  good  the  deticiency  in  interest  the  stockholders  have  put  their 
hands  in  their  pockets  and  advanced  over  a  million  of  dollars.  The  supplies 
for  the  road  have  been  purchased  at  as  cheap  a  rate  as  possible.  The  officers 
and  employees  have  been  paid  no  more  than  is  necessary  to  secure  men  of 
the  skill  and  knowledge  requisite  to  suitable  operation  of  the  road.  .  .  . 
The  actual  reduction  by  virtue  of  this  tariff  in  the  receipts  during  the  six 
or  eight  months  that  it  has  been  enforced  amounts  to  over  $150,000. 

Upon  these  facts  the  court  said : 

A  general  averment  in  a  bill  that  a  tariff  as  established  is  unjust  and  un- 
reasonable, is  supported  by  the  admitted  facts  that  the  road  cost  far  more 
than  the  amount  of  the  stock  and  bonds  outstanding ;  that  such  stock  and 
bonds  represent  money  invested  in  its  construction ;  that  there  has  been 
no  waste  or  mismanagement  in  the  construction  or  operation ;  that  sup- 
plies and  labor  have  been  purchased  at  the  lowest  possible  price  consistent 
with  the  successful  operation  of  the  road ;  that  the  rates  voluntarily  fixed 
by  the  company  have  been  for  ten  years  steadily  decreasing  until  the  aggre- 
gate decrease  has  been  more  than  fifty  per  cent ;  that  under  the  rates  thus 
voluntarily  established,  the  stock,  which  represents  two-fifths  of  the  value, 
has  never  received  anything  in  the  way  of  dividends,  and  that  for  the  last 
three  years  the  earnings  above  operating  expenses  have  been  insufficient  to 
pay  the  interest  on  the  bonded  debt,  and  that  the  proposed  tariff,  as  enforced, 
will  so  diminish  the  earnings  that  they  will  not  be  able  to  pay  one-half  the 


532  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

interest  on  the  bonded  debt  above  the  operating  expenses;  and  that  such 
an  averment  so  supported,  will,  in  the  absence  of  any  satisfactory  showing 
to  the  contrary,  sustain  a  finding  that  the  proposed  tariff  is  unjust  and  un- 
reasonable, and  a  decree  reversing  it  being  put  in  force. 

In  deciding  whether  a  tariff  is  so  unreasonable  and  unjust  as  practi- 
cally to  destroy  the  value  of  the  carrier's  property,  it  is  of  course  essen- 
tial to  fix  the  standard  or  principle  upon  which  that  value  is  to  be 
determined.  Upon  this  question  the  Reagan  case  is  indecisive.  Some 
of  the  language  suggests  that  cost  of  the  property  is  the  proper  measure 
of  its  value ;  other  language,  cost  of  replacement ;  and  still  other 
language,  present  value.  The  question  was  left  for  discussion  in  the 
later  cases. 

The  Reagan  case  had  dealt  with  the  effect  of  the  tariff  of  rates  as 
a  whole.  Similar  questions  arose  in  St.  Louis  and  San  Francisco 
Railw^ay  vs.  Gill,^  where  it  was  decided  that  the  correct  test  was  the 
effect  of  the  rates  on  the  whole  line  of  the  carrier's  road,  and  not 
the  effect  upon  that  portion  which  was  formerly  a  part  of  one  of  the 
consolidating  roads ;  that  a  company  cannot  claim  the  right  to  earn 
a  net  profit  for  every  mile  of  road,  nor  attack  as  unjust  a  regulation 
w^hich  fixes  a  rate  at  which  some  part  would  be  unremunerative ;  that 
the  earnings  of  the  entire  line  must  be  estimated  as  against  all  its  legiti- 
mate expenses  under  the  operation  of  the  act  within  the  limits  of  the 
State.  The  last  qualification  presents  a  new  difficulty,  —  that  of 
severing  a  railroad  into  parts  divided  by  the  imaginary  state  lines. 
The  later  effort  to  segregate  intrastate  and  interstate  business  has  led 
to  difficult  problems  still  in  process  of  solution.  The  Gill  case  was  a 
suit  for  a  penalty,  and  the  court  in  referring  to  Justice  Miller's  state- 
ment in  the  Minnesota  Rate  cases  that  the  rates  were  binding  until 
judicially  determined  to  be  void,  added  that  in  cases  where  the  legis- 
lature itself  fixed  the  rates,  a  bill  in  equity  was  impracticable  because 
there  was  no  public  functionary  or  commission  which  could  be  made 
to  respond,  and  the  companies,  if  they  were  to  have  any  relief,  must 
have  the  right  to  raise  the  question  by  way  of  defense  to  an  action 
for  penalties.  This  remark  was  unnecessary  to  the  decision,  since  the 
result  of  the  case  on  the  facts  w^as  against  the  carrier.  The  remedy 
by  injunction  to  restrain  legal  officers  of  the  state  from  prosecuting, 
came  later. 

The  same  principle  that  applies  to  the  case  of  a  carrier,  applies  also 
to  a  turnpike  company.  In  Covington,  etc.,  Turnpike  Company 
vs.  Sandford,^  the  court  held  that  the  facts  that  the  tolls  for  several 
years  prior  to  1890  had  not  admitted  of  dividends  greater  than  4  per 
cent  on  the  par  value  of  the  stock  ;  that  the  proposed  reduction  would 
so  diminish  the  income  of  the  company  that  it  could  not  maintain 

1 156  U.S.  649.  [1895.]  2  164  U.S.  578.  [1896.] 


COMMERCE  AND   INDUSTRY  533 

its  road,  meet  its  ordinary  expenses,  and  earn  any  dividends  whatever 
for  stockholders,  showed  that  the  constitutional  rights  of  the  turnpike 
company  were  violated.  Justice  Harlan  was  careful  to  say  that  a 
mere  failure  of  the  rates  to  suffice  to  earn  four  per  cent  on  the  stock 
would  not  justify  holding  the  rates  to  be  void.  "It  cannot  be  said," 
he  added,  "that  a  corporation  is  entitled,  as  of  right,  and  without 
reference  to  the  interests  of  the  pubhc,  to  realize  a  given  per  cent  upon 
its  capital  stock.  .  .  .  The  public  cannot  properly  be  subjected  to 
unreasonable  rates  in  order  simply  that  stockholders  may  earn  divi- 
dends." In  dealing  with  the  question  how  the  reasonableness  of  rates 
was  to  be  ascertained,  the  court  was  not  very  satisfactory.  The  in- 
quiry was  said  to  involve  a  consideration  of  the  right  of  the  public  to 
use  the  road  on  paying  reasonable  tolls,  and  also  of  the  reasonable 
cost  of  maintaining  the  road  in  good  condition  for  public  use,  and  the 
amount  that  may  have  been  really  and  necessarily  invested  in  the 
enterprise.  It  was  held  that  there  might  be  other  circumstances, 
not  then  necessary  to  state ;  that  each  case  must  depend  upon  its 
special  facts ;  and  justice  might  require  different  rates  for  different 
roads.  In  short,  the  opinion  merely  holds  that  rates  must  be  reason- 
able and  fair  both  to  the  public  and  the  company  and  must  not  be  so 
low  as  practically  to  deprive  the  company  of  its  property.  No 
standard  was  fixed,  and  the  case  decided  only  that  the  particular  rates 
infringed  the  constitutional  provision.  The  language  of  the  court  in- 
dicates that  it  is  the  actual  and  necessary  investment  of  the  company 
that  is  to  be  considered.  This  seems  to  mean  the  actual  necessary 
cost  as  distinguished  from  cost  of  replacement  or  present  value. 

The  results  reached  up  to  this  point  may  be  thus  summarized. 
State  enactments  or  regulations  establishing  rates  that  will  not  permit 
of  the  carrier  earning  such  compensation  as  under  all  the  circumstances 
is  just  to  it  and  the  public,  infringe  the  provisions  of  the  Fourteenth 
Amendment ;  and  the  question  whether  rates  are  so  unreasonably 
low  as  to  deprive  the  carrier  of  its  property  cannot  be  conclusively 
determined  by  the  legislative  authority  of  the  state,  but  may  be  the 
subject  of  judicial  inquiry. 

Ill 

These  general  principles  do  not  go  far  to  solve  the  question  in  a  par- 
ticular case.  The  decision  in  the  Nebraska  Maximum  Rate  Cases  ^ 
took  a  further  step.  It  was  contended  on  behalf  of  the  State  that  the 
compensation  to  be  allowed  the  carrier  after  payment  of  operating 
expenses  was  purely  a  question  of  public  policy  to  be  determined  by 
the  legislature  and  not  by  the  courts.  "It  cannot  be  successfully 
contended,"  said  counsel  for  the  State,  "that  so  long  as  the  rate 

1  Smyth  vs.  Ames.     Smyth  vs.  Smith.     Smyth  vs.  Higginson,  169  U.S.  466.     [1898] 


534  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

fixed  pays  something  above  operating  expenses  to  the  corporation  for 
the  carrying  of  property,  it  amounts  to  the  taking  either  of  the  use  or 
of  the  property."  "It  must  follow  then,  that,  so  long  as  the  rate  fixed 
by  the  law  will  pay  the  operating  expenses  when  economically  ad- 
ministered, and  something  in  addition  thereto,  the  power  of  the  court 
ends,  and  the  extent  to  which  rates  must  produce  profits  is  one  of 
political  policy."  In  short,  the  contention  was  that  the  right  of  prop- 
erty in  a  railroad  consisted  in  the  title  and  possession  and  the  privilege 
to  operate  it  economically,  with  the  right  to  such  additional  compensa- 
tion, however  small,  as  the  legislature  chose  to  allow  from  time  to 
time.  The  successful  maintenance  of  this  proposition  would  plainly 
have  ended  the  control  of  the  courts  over  the  subject.  It  went  to  the 
very  root  of  the  matter.  It  might  logically  be  contended  that  a  prop- 
erty right  that  was  subject  to  legislative  regulation,  as  settled  by  the 
Granger  Cases,  was  not  taken  away  when  the  legislature  did  in  fact 
regulate ;  but  it  was  nevertheless  true  that  the  power  to  regulate  was 
not  a  power  to  destroy.  The  case  involved  really  a  definition  of  the 
word  "property"  as  applied  to  a  common  carrier ;  and  in  view  of  the 
earlier  decisions,  the  court  very  naturally  answered  the  contention 
of  counsel  by  saying : 

The  idea  that  any  legislature,  State  or  Federal,  can  conclusively  determine 
for  the  people  and  for  the  courts  that  what  it  enacts  in  the  form  of  law,  or 
what  it  authorizes  its  agents  to  do,  is  consistent  with  the  fundamental  law, 
is  in  opposition  to  the  theory  of  our  institutions.  The  duty  rests  upon  all 
courts,  Federal  and  State,  when  their  jurisdiction  is  properly  invoked,  to 
see  to  it  that  no  right  secured  by  the  supreme  law  of  the  land  is  impaired  or 
destroyed  by  legislation.  This  function  and  duty  of  the  judiciary  distin- 
guishes the  American  system  from  all  other  systems  of  government.  The 
perpetuity  of  our  institutions  and  the  liberty  which  is  enjoyed  under  them 
depend,  in  no  small  degree,  upon  the  power  given  the  judiciary  to  declare 
null  and  void  all  legislation  that  is  clearly  repugnant  to  the  supreme  law  of 
the  land. 

The  definition  of  "property"  becomes,  therefore,  in  the  last  resort  a 
matter  for  the  courts. 

The  Nebraska  case  involved  also  the  question  of  rates  within  a  state 
over  railroads  extending  through  other  states.  It  was  said  that  rates 
reasonable  in  Iowa  might  be  unreasonable  in  Nebraska  since  the 
density  of  population,  and  hence  of  traffic,  might  be  greater  in  the 
former,  while  the  cost  of  construction  and  maintenance  might  be  less. 
It  was  held  that  the  reasonableness  of  rates  on  traffic  wholly  within  the 
state  must  be  determined  without  reference  to  the  interstate  business 
done  by  the  carrier  or  to  the  profits  derived  from  it.  "The  argument 
that  a  railroad  line  is  an  entirety ;  that  its  income  goes  into,  and  its 
expenses  are  provided  for  out  of  a  common  fund,  and  that  its  capitaliza- 
tion is  on  its  entire  line,  within  and  without  the  state,  can  have  no 


COMMERCE  AND   INDUSTRY  535 

application  where  the  State  is  without  authority  over  rates  on  the  en- 
tire hne,  and  can  only  deal  with  local  rates  and  make  such  regulations 
as  are  necessary  to  give  just  compensation  on  local  business." 
Whether  the  attempt  thus  made  to  sever  the  intrastate  from  the  inter- 
state business  can  be  carried  out  successfully  is  a  question  involved 
in  later  litigation  and  not  yet  settled.  It  involves  a  determination 
of  the  proportion  of  value  of  plant  and  cost  of  traffic  to  be  attributed 
to  the  lines  within  the  state.  In  view  of  the  interaction  of  the  various 
elements  of  cost  and  of  revenue  within  and  without  the  state  upon 
each  other,  the  problem  is  most  difficult,  and  may  prove  possible  of 
solution  only  by  an  approximation. 

The  court  in  the  Nebraska  case  considered  also  the  question  on  what 
amount  the  railroads  were  entitled  to  earn  a  revenue.     The  companies 
contended  that  they  were  entitled  to  such  rates  as  would  enable  them 
at  all  times,  not  only  to  pay  operating  expenses,  but  also  to  meet 
the  interest  regularly  accruing  upon  all  outstanding  obligations  and 
to  justify  a  dividend  on  all  their  stock;    less  than  that,  it  was  said, 
would  deprive  them  of  property  without  due  process  of  law.     The 
court  held,  however,  that  this  contention  practically  excluded  from 
consideration  the  fair  value  of  the  property  used,  omitted  the  right  of 
the  public  to  be  exempt  from  unreasonable  exactions,  would  justify 
the  railroad  in  trying  to  earn  interest  on  bonds  in  excess  of  its  fair 
value  and  dividends  on  fictitious  capitalization.     The  court  was  still 
indefinite  in  laying  down  the  basis  of  the  valuation  on  which  earnings 
might  fairly  be  had.     It  said  the  rights  of  the  pubhc  would  be  ignored 
if  rates  were  exacted  without  reference  to  the  fair  value  of  the  property 
used  for  the  public  or  the  fair  value  of  the  services  rendered.     But  these 
two  bases  of  calculation  are  far  from  leading  to    the    same   result. 
To  base  rates  upon  the  value  of  the  property,  involves  the  value  of 
the  plant  in  its  entirety  and  the  net  result  of  all  the  rates  on  thousands 
of  items.     To  base  them  upon  the  value  of  the  services  rendered,  in- 
volves a  consideration  only  of  particular  items  and  may  involve   a 
consideration  of  the  value  of  the  services  to  the  shipper.     The  two 
methods  are  incommensurate.     What  the  court  decided  was  that  the 
basis  of  all  calculations  as  to  the  reasonableness  of  rates  must  be  the 
fair  value  of  the  property  used ;  that  in  order  to  ascertain  that  value, 
the  original  cost  of  construction,  the  amount  expended  in  permanent 
improvements,  the  amount  and  market  value  of  the  bonds  and  stock, 
the  present  as  compared  with  the  original  cost  of  construction,  the 
probable  earning  capacity  of  the  property  under  the  particular  rates 
prescribed,  and  the  sum  required  to  meet  operating  expenses,  are  all 
matters  for  consideration,  to  be  given  such  weight  as  may  be  just  and  ^ 
right  in  each  case.     Justice  Harlan  was  careful  to  add'   "We  do  not 
say  that  there  may  not  be  other  matters  to  be  regarded  in  estimating 
the  value  of  the  property." 


536    TENDENCIES  TOWARD   FEDERAL   CONTROL  OF 

Many  of  these  elements  required  and  have  received  and  are  destined 
to  receive  further  definition  and  analysis.  What  other  elements  are 
to  be  considered  may  never  be  finally  settled,  so  infinitely  various  are 
the  circumstances  that  distinguish  each  case  as  it  arises. 

The  court  soon  had  occasion  to  apply  the  rule,  and  the  opinion 
shows  no  greater  certainty  in  the  basis  of  valuation.^  A  water  com- 
pany insisted  that  the  court  should  consider  the  cost  of  the  plant,  the 
annual  cost  of  operation  including  interest  on  money  borrowed  and 
reasonably  necessary  to  be  used  in  constructing  the  same ;  the  annual 
depreciation  of  the  plant  from  natural  causes  resulting  from  its  use ; 
and  a  fair  profit  to  the  company  either  by  way  of  interest  on  the  money 
expended  for  the  public  use,  or  upon  some  other  fair  and  equitable 
basis.  All  these  matters  the  court  conceded  ought  to  be  taken  into 
consideration,  but  it  held  that  the  basis  of  calculation  was  defective 
in  not  requiring  the  real  value  of  the  property  and  the  fair  value  in 
themselves  of  the  services  rendered  to  be  taken  into  consideration. 
The  opinion,  however,  points  to  no  more  definite  rule.  "What  the 
company  is  entitled  to  demand,"  says  the  court,  "in  order  that  it  may 
have  just  compensation,  is  a  fair  return  upon  the  reasonable  value  of 
the  property  at  the  time  it  is  being  used  for  the  public."  This 
adopts  present  value  as  the  standard,  but  leaves  unsettled  how  the 
reasonable  value  of  the  property  is  to  be  ascertained,  and  what  is  a 
fair  return. 

The  opinion  in  the  next  case  ^  sought  to  make  a  distinction  between 
public  ser\ace  companies  and  companies  which  without  any  intent  of 
public  ser^•ice  have  placed  their  property  in  such  a  position  that  the 
public  has  an  interest  in  its  use.  As  to  the  first  class,  Justice  Brewer 
said  the  owner  intentionally  devoted  his  property  to  the  discharge  of 
a  public  service,  and  undertook  that  which  is  a  proper  work  for  the 
State,  and  might  be  said  to  accept  voluntarily  all  the  conditions  of 
public  service  which  attach  to  like  service  performed  by  the  State  it- 
self. As  to  the  second  class,  the  owner  placed  his  property  in  such  a 
position  willingly  or  unwillingly,  that  the  public  acquire  an  interest  in 
its  use,  but  he  submits  only  to  those  necessary  interferences  and  regu- 
lations which  the  public  interests  require.  Of  the  former  it  was  said, 
that,  since  the  State  was  not  guided  solely  by  a  question  of  profit  but 
might  conduct  the  business  at  a  loss  having  in  view  a  larger  general 
interest,  so  perhaps  an  individual  who  had  shown  his  willingness  to 
undertake  the  work  of  the  State  might  be  held  to  perform  that 
service  without  profit.  The  suggestion  was  put  in  the  form  of  an 
interrogation,  since  it  was  confessedly  unnecessary  in  the  pending 
case  to  determine  the  question.  It  seems  to  conflict  \\'ith  Smyth  vs. 
Ames,  and  the  court  has  never  yet  decided  that  the  legal  right  of 

1  San  Diego  Land  Co.  rs.  National  City,  174  U.S.  739-     [1899-] 
'Cotting  vs.  Kansas  City  Stock  Yards  Co.,  183  U.S.  79.     [1901.] 


COMMERCE  AND   INDUSTRY  537 

regulation  goes  to  this  extent.  The  decided  case  involves  a  corpo- 
ration of  the  other  class,  which  was  not  doing  the  work  of  the  State, 
was  not  performing  a  public  service,  and  had  acquired  from  the 
State  none  of  its  governmental  powers.  The  business  was  that  of 
a  stock  yard  at  Kansas  City.  The  business  was  held  to  be  so  af- 
fected with  a  public  interest,  being  at  the  gateway  of  a  great  com- 
merce of  which  it  was  an  important,  if  not  a  necessary,  adjunct,  that  its 
charges,  like  those  of  a  grain  elevator,  were  subject  to  public  regulation. 
But  the  court  said  the  "business  in  all  matters  of  purchase  and  sale 
is  subject  to  the  ordinary  conditions  of  the  market  and  the  freedom 
of  contract.  He  (the  owner)  can  force  no  one  to  sell  to  him,  he  cannot 
prescribe  the  price  which  he  shall  pay.  ...  If  under  such  cir- 
cumstances he  is  bound  by  all  the  conditions  of  ordinary  mercantile 
transactions,  he  may  justly  claim  some  of  the  pri\nleges  which  attach 
to  those  engaged  in  such  transactions.  And  while  he  cannot  claim 
immunity  from  all  state  regulation,  he  may  rightfully  say  that  such 
regulation  shall  not  operate  to  deprive  him  of  the  ordinary  privileges 
of  others  engaged  in  mercantile  business."  The  difference  in  practical 
result  suggested  in  the  opinion  is,  that  in  the  case  of  a  business  affected 
with  a  public  interest,  although  not  devoted  to  the  public  service,  the 
state's  regulation  of  charges  is  not  to  be  measured  by  the  aggregate 
of  profits  determined  by  the  volume  of  business,  but  by  the  question 
w^hether  any  particular  charge  to  an  individual  dealing  with  him  is, 
considering  the  service  rendered,  an  unreasonable  exaction.  "The 
question  is  not  how  much  he  makes  out  of  his  volume  of  business, 
but  whether  in  each  particular  transaction  the  charge  is  an  unreason- 
able exaction  for  the  services  rendered.  He  has  a  right  to  do  business. 
He  has  a  right  to  charge  for  each  separate  service  that  which  is  reason- 
able compensation  therefor,  and  the  legislature  may  not  deny  him 
such  reasonable  compensation,  and  may  not  interfere  simply  because 
out  of  the  multitude  of  his  transactions  the  amount  of  his  profits 
is  large.  Such  was  the  rule  of  the  common  law  even  in  respect  to  those 
engaged  in  a  quasi  public  service  independent  of  legislative  action. 
In  any  action  to  recover  for  an  excessive  charge,  prior  to  all  legislative 
action,  who  ever  knew  of  an  inquiry  as  to  the  amount  of  the  total 
profits  of  the  party  making  the  charge?" 

The  distinction  suggested  by  Justice  Brewer  and  his  expressions 
with  reference  to  the  subject  are  interesting  and  suggestive;  but  the 
opinion  was  not  the  opinion  of  the  court.  Six  out  of  nine  judges 
assented  to  the  judgment  upon  the  ground  that  the  Kansas  statute 
violated  the  Fourteenth  Amendment  because  it  applied  only  to  one 
stock-yards  company,  and  not  to  other  corporations  engaged  in  like 
business  in  Kansas,  and  therefore  denied  to  that  company  the  equal 
protection  of  the  laws.  They  were  careful  to  say  that  they  expressed 
no  opinion  upon  the  question  whether  it  deprived  thecompany  of  its 


538    TENDENCIES  TOWARD   FEDERAL   CONTROL  OF 

property  without  due  process  of  law.  This,  and  not  Justice  Brewer's 
elaborate  opinion,  expresses  the  view  of  the  court.  Under  the  facts 
of  the  case,  it  amounted  to  saying  that  the  answer  was  doubtful  to  the 
ciuestion  whether  rates  that  enabled  a  company  to  earn  5.3  per  cent 
on  the  value  of  the  property  used  for  stock-yards  purposes,  instead 
of  about  10  per  cent  previously  earned,  amounted  to  depriving  it  of 
I)roperty  without  due  process  of  law  ;  the  propriety  of  any  rate  of  re- 
turn was  not  decided. 

The  suggestion  that  a  public  service  company,  doing  the  work  of  the 
state,  might  properly  do  it  for  an  unremunerative  rate,  bore  fruit  in 
the  Minnesota  Coal  Rate  case.^  That  case  is  important  because  it 
sustained  an  unremunerative  rate  upon  coal  fixed  by  the  state  com- 
mission. The  ruling  is  in  conflict  with  the  reasoning  of  Smyth  vs. 
Ames  (the  Nebraska  cases)  and  the  court  recognizes  the  necessity  of 
explaining  the  distinction.  It  says  that  while  the  reasonableness 
or  unreasonableness  of  rates  for  intrastate  traffic  must  be  deter- 
mined without  reference  to  the  interstate  business,  it  does  not  fol- 
low that  the  companies  are  entitled  to  earn  the  same  percentage  of 
profits  on  all  classes  of  freight  carried.  This  hardly  justifies  the  con- 
clusion that  the  carrier  may  be  compelled  to  carry  some  goods  at  a 
loss ;  for  if  so,  the  power  to  select  those  goods  involves  a  power  to 
discriminate  quite  at  variance  with  fundamental  principles  ;  if  the  rail- 
road can  be  compelled  to  carry  coal  at  a  loss,  it  may  also  be  com- 
p  lied  to  carry  other  goods  at  a  loss ;  and  since  it  is  entitled  to  a  fair 
return  upon  the  whole  business,  this  loss  must  be  made  up  by  the  im- 
position of  a  heavier  rate  on  other  goods  than  would  naturally  fall 
thereon ;  the  public  authorities  are  then  permitted  to  discrimi- 
nate against  some  shippers  and  in  favor  of  others,  a  discrimination 
which  has  always  been  condemned,  and  was  held  to  be  illegal  by 
the  New  Jersey  Supreme  Court,^  upon  the  ground  that  carriers 
were  engaged  in  a  public  employment,  three  years  before  the  United 
States  Supreme  Court  decided  the  Granger  cases. 

The  court  in  the  Minnesota  Coal  Rate  case,  sought  to  justify  the 
losing  rate  upon  the  ground  that  for  purposes  of  ultimate  profit  and 
of  building  up  a  future  trade,  railways  carr\'  both  freight  and  passen- 
gers at  a  positive  loss.  No  doubt  such  is  the  fact,  and  if  railways  were 
to  be  left  free  to  fLx  rates  according  to  their  own  pleasure,  and  to  dis- 
criminate at  their  pleasure  between  shippers,  the  practice  of  sowing 
seed  to  reap  a  future  crop  might  be  permissible.  The  difl&culty  is 
that  considerations  of  that  kind  are  not  reducible  to  a  legal  rule,  but 
involve  considerations  of  business  policy. 

It  is  not  only  difficult  to  determine  how  much  of  the  value  of  an 
entire  railroad  shall  be  attributed  to  the  portion  within  a  state,  but 

1  Minneapolis  &  St.  Louis  R'd  Co.  vs.  Minnesota,  i86  U.S.  257.     [1902.] 
2 Messenger  vs.  Pennsylvania  R.R.  700,  407.     [1873.] 


COMMERCE  AND  INDUSTRY  539 

since  even  that  portion  is  used  in  part  for  intrastate  and  in  part  for  in- 
terstate traffic,  the  value  of  the  property  used  for  local  and  for  through 
traffic  must  also  be  determined ;  and  since  all  the  business  is  done  by 
the  same  men,  with  the  same  equipment,  the  total  cost  of  conducting 
the  business  must  also  be  apportioned.  As  might  be  expected  from 
the  intricacy  of  the  problem,  the  results  thus  far  reached  are  not  satis- 
factory. In  the  Gill  case  it  was  held  that  every  mile  need  not  pay, 
from  which  it  would  seem  to  result  that  the  system  must  be  treated 
as  an  entity,  and  that  losses  on  local  traffic  might  be  balanced  by 
profit  on  through  traffic  or  vice  versa.  Smyth  vs.  Ames  decided  the 
contrary,  and  made  necessary  the  determination  of  the  proper  basis  for 
apportionment  of  value  and  cost.  The  South  Dakota  case  ^  rejected 
gross  receipts  as  a  proper  basis  for  the  apportionment.  The  other 
basis  suggested  is  that  of  the  volume  of  trafiic  determined  according 
to  ton  mileage.  The  tendency  of  the  more  recent  cases  in  the  lower 
federal  courts  seems  to  be  in  the  direction  of  apportioning  cost  and 
value  according  to  gross  receipts.  The  question  is  still  unsettled  in 
the  Supreme  Court.  In  the  Florida  Phosphate  cases,^  the  court 
leaned  to  the  ton  mile  basis,  at  least  as  far  as  concerns  the  cost  of  doing 
the  business. 

The  question  to  be  decided  when  the  protection  of  the  Fourteenth 
Amendment  is  invoked,  is  whether  the  rates  as  a  whole  afford  a 
sufficient  return,  or  are  so  low  as  to  amount  to  confiscation.  When, 
as  in  the  South  Dakota  Coal  case  or  the  Florida  Phosphate  cases,  the 
rate  upon  a  single  article  only  is  involved,  it  is  impossible  to  determine 
the  effect  of  that  single  rate  upon  gross  or  net  returns  on  the  entire 
traffic,  and  hence  impossible  to  prove  that  the  rate  fixed  is  so  low  as 
to  amount  to  confiscation.  Such  was  the  result  in  the  Florida  Phos- 
phate cases,  and  it  is  quite  conceivable  that  the  court  might  be  forced 
to  decide  that  one  unremunerative  rate  after  another  was  not  in 
conflict  with  the  property  right  of  the  carrier,  until  an  entire  schedule 
of  unremunerative  rates  might  have  been  sustained.  In  the  Phos- 
phate cases  the  question  did  not  arise,  since  the  rate  permitted  ex- 
ceeded the  average  receipts  per  ton  per  mile  under  the  previous  tariff. 
But  the  possibility  of  the  result  I  have  indicated  illustrates  the  danger 
of  the  decision  in  the  Minnesota  Coal  case,  that  a  carrier  may  be  re- 
quired to  carry  a  particular  commodity  at  an  unremunerative  rate. 

IV 

The  reasonable  value  of  the  property  used  was  by  1903  pretty  well 
recognized  as  the  proper  standard  upon  which  returns  may  be  earned. 
In  San  Diego  Land  &  Town  Co.  vs.  Jasper^  the  court  said:    "It  no 

1  Chicago,  M.  &  St.  P.  R'y-  "•  Tompkins,  176  U.S.  167. 

2  Atlantic  Coast  Line  vs.  Florida.  203  U.S.  256.  [1906.]  Seaboard  Air  Line  vs.  Florida, 
203  U.S.  261.    [1906.]  « 189  U.S.  439-     liyo,;.| 


540  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

longer  is  open  to  dispute  that  under  the  Constitution  what  the  com- 
pany is  entitled  to  demand,  in  order  that  it  may  have  just  compensa- 
tion, is  a  fair  return  upon  the  reasonable  value  of  the  property  at  the 
time  it  is  being  used  for  the  public."  That  standard  is  adopted  as 
against  a  standard  based  on  actual  cost,  less  depreciation.  Actual 
cost,  selling  price,  valuation  for  taxation,  may  all  be  evidence  of  the 
actual  value.  But  actual  value  may  sometimes  be  enhanced  by  the 
fact  that  the  plant  is  larger  than  is  needed.  Is  the  company  entitled  to 
earn  a  revenue  on  an  unnecessary  expenditure?  To  this  question, 
the  court  answers,  no.  Upon  the  value  as  fixed  by  the  local  board, 
rates  were  fixed  with  the  intention  of  securing  a  yield  of  6  per  cent. 
The  court  found  no  sufficient  evidence  that  this  rate  was  confiscatory. 
But  the  local  board  had  fixed  the  rates  as  if  the  water  company  sup- 
plied the  whole  6000  acres  outside  the  city  for  which  the  works  were 
intended.  In  fact  it  supplied  less,  and  its  receipts  were  therefore  less 
than  the  supervisors  estimated.  The  result  might  give  the  appellant 
less  than  6  per  cent  on  the  value  of  the  plant.  But  the  court  said  that 
if  the  plant  was  built  for  a  larger  area  than  it  could  supply,  the  Con- 
stitution did  not  require  that  two-thirds  of  the  contemplated  area 
should  pay  a  full  return.  The  case  is  therefore  important  because  it 
holds  that  a  failure  to  pay  6  per  cent  on  present  value  is  not  necessarily 
decisive  of  the  question  whether  rates  are  confiscatory  so  as  to  violate 
the  constitutional  provision.  The  present  value  on  which  the  com- 
pany is  entitled  to  a  return  is  only  the  present  value  of  what  is  reason- 
ably necessary  for  the  public  service. 

A  water  company  in  California  ^  was  incorporated  under  a  statute 
which  empowered  the  county  board  of  supervisors  to  regulate  rates, 
but  not  to  reduce  them  so  low  as  to  yield  to  stockholders  less  than 
1 1  per  cent  a  month  on  the  capital  actually  invested.  After  the 
company  had  in\'ested  about  a  million  dollars  in  its  plant,  a  new  statute 
empowered  the  supervisors  to  so  adjust  the  rates  as  to  yield  not  less 
than  6  nor  more  than  18  per  cent  per  annum  upon  the  value  of  the 
property  actually  used  and  useful  for  the  supply  of  water.  The  court 
held  that  there  was  no  contract  the  obligation  of  which  was  impaired, 
and  that  even  if  there  was  a  contract,  the  legislature  might  alter  or 
amend  the  original  statute  under  its  reserved  power.  For  our  present 
purpose  the  imiportant  point  decided  is  that  it  is  not  a  confiscation  nor  a 
taking  of  property  without  due  process,  nor  a  denial  of  the  equal  pro- 
tection of  the  laws,  to  fix  water  rates  so  as  to  give  an  income  of  six  per 
cent  upon  the  then  value  of  the  property  actually  used,  even  though 
the  company  had  prior  thereto  been  allowed  to  fix  rates  that  would 
secure  to  it  18  per  cent  upon  the  capital  actually  invested.  The 
right  of  property  of  a  water  company  under  the  California  statute, 

1  Stanislaus  County  vs.  San  Joaquin  and  King's  River  Canal  and  Irrigation  Co.,  192 

U.S.  201.     [1904.] 


COMMERCE  AND  INDUSTRY  541 

so  far  as  it  is  protected  by  the  Fourteenth  Amendment,  is  no  more 
than  a  right  to  earn  6  per  cent  on  present  value,  regardless  of  actual 
investment  or  previous  statutory  provisions  permitting  a  larger  return. 

The  method  of  determining  present  value  still  remains  to  be  settled. 
To  ascertain  the  value  of  tangible  property,  such  as  lands  or  buildings, 
for  the  purpose  of  determining  the  just  compensation  required  to  be 
made  when  it  is  taken  for  public  use,  has  always  been  a  sufficiently 
difficult  question.  To  ascertain  the  value  for  the  purpose  of  deter- 
mining whether  a  schedule  of  rates  is  confiscatory  is  more  difficult 
still. 

In  the  Knoxville  Water  Company  case,^  the  value  had  been  based 
on  cost  of  reproduction,  to  which  there  was  added  $10,000  for  organiza- 
tion and  promotion  expenses,  and  $60,000  for  value  as  a  going  concern. 
The  court  declined  to  decide  upon  the  propriety  of  including  these 
two  items  in  the  estimate,  and  expressly  reserved  them  for  con- 
sideration when  the  question  necessarily  arose.  The  Knoxville  case 
turned  upon  the  failure  of  the  court  below  to  make  a  proper  de- 
duction for  depreciation  arising  from  age  and  use.  It  was  held  that 
the  water  company  was  not  entitled  to  value  an  old  plant  as  if  it  were 
a  new  one.  The  more  interesting  question  was  as  to  the  right  of  the 
company  to  add  to  the  present  value  of  its  plant,  the  cost  of  what  had 
been  lost  through  destruction  or  obsolescence,  and  what  had  been 
impaired  in  value  although  still  in  use.  There  was  little  discussion  of 
the  question  in  the  opinion,  no  doubt  because  the  circumstances  of 
the  particular  case  did  not  call  for  discussion.  The  court  held  that  it 
was  the  duty  of  the  company  to  use  enough  of  its  earnings  to  keep  its 
plant  good,  before  coming  to  the  question  of  the" amount  of  its  profits, 
and  that  if  it  failed  to  keep  its  investment  unimpaired,  whether  be- 
cause it  declared  unwarranted  dividends  on  over-issues  of  securities, 
or  because  it  failed  to  exact  proper  prices  for  its  output,  it  could  not 
enhance  the  present  value  of  its  property  by  the  addition  of  the  costs 
of  its  mistakes.  The  question  is  likely  to  arise,  as  it  has  already  in 
some  cases,  in  a  more  difficult  form,  where  fruitless  but  necessary  ex- 
periments have  been  made,  or  plant  has  become  obsolete  in  a  rapidly 
advancing  industry  before  it  could  possibly  be  made  good  out  of  cur- 
rent earnings.  It  arose  before  the  Interstate  Commerce  Commission, 
in  the  converse  case  where  the  corporation,  in  order  to  reduce  its 
apparent  rate  of  earnings,  sought  to  charge  against  current  earnings 
the  cost  of  betterments  from  which  it  was  hkely  to  profit  for  years 
to  come.  The  Supreme  Court  approved  the  ruling  of  the  Interstate 
Commerce  Comrriission  and  held  that  the  instrumentahties  that  are 
to  be  used  for  years  should  not  be  paid  for  by  the  revenues  of  a  day  or 
year.2    A  public  service  company  cannot  use  more  money  in  a  year 

1  Knoxville  vs.  Water  Co.,  212  U.S.  i.     [1909.] 

*  Illinois  Cent.  R.R.  vs.  Inter.  Com.  Comm.,  206 'U.S.  441.     [1907.] 


542     TENDENCIES  TOWARD    FEDERAL   CONTROL  OF 

than  is  required  for  actual  depreciation,  and  carry  the  excess  as  an 
addition  to  capital  for  the  purpose  of  estimating  the  amount  on  which 
it  is  entitled  to  dividends,  in  determining  whether  a  rate  is  confisca- 
tory.^ Novel  questions  of  this  character  will  arise  with  increasing  fre- 
quency, and  require  the  most  careful  consideration.  Like  most  other 
questions  in  every  department  of  the  law,  they  are  in  their  origin  rather 
questions  of  fact  than  questions  of  law,  although  in  course  of  time  the 
rules  become  settled  and  thus  become  rules  of  law.  In  their  origin, 
and  as  yet,  many  questions  are  questions  of  sound  business  manage- 
ment and  engineering  science.  The  law  prescribes  reasonable  re- 
turns upon  a  reasonable  valuation.  What  is  a  reasonable  return  and 
what  is  a  reasonable  valuation  must  vary  with  the  circumstances  of 
each  particular  case. 

The  basis  of  present  value  adopted  in  the  Knoxville  Water  Company 
case,  was  cost  of  reproduction,  less  an  allowance  for  depreciation,  in 
order  to  make  up  the  difference  between  the  value  of  new  and  old.  Such 
a  basis  in  the  case  of  land,  especially  in  a  growing  city,  tends  to  make 
the  cost  of  reproduction  exceed  the  original  cost,  and  in  the  case  of  rail- 
roads especially  is  almost  sure  to  make  present  value  greatly  in  excess 
of  cost  to  the  companies.  It  has  therefore  been  contended  \^dth  much 
ingenuity  and  force,  that  the  basis  for  rate  regulation  should  not  exceed 
the  capital  actually  invested.  In  Willcox  vs.  Consolidated  Gas  Co.,^ 
it  was  argued  that  one  gas  company  should  not  be  permitted  to  charge 
more  than  another,  for  the  sole  reason  that  movements  of  population, 
uninfluenced  by  either  company,  had  caused  the  site  of  its  plant  to  be 
more  valuable  if  vacated  and  sold  ;  for  it  was  said,  that,  although  the 
fortunate  company  was  entitled  to  obtain  the  full  value  of  the  land 
when  sold,  the  unrealized  profit  meanwhile  did  not  represent  profit  used 
in  the  manufacture  and  distribution  of  gas,  but  rather  represented 
wealth  which  the  manufacture  and  distribution  of  gas  keeps  out  of 
use.  This  argument  seems  sound.  The  circumstances  of  the  case 
did  not  call  for  an  answer  by  the  court.  It  did,  however,  distinctly 
reject  the  basis  of  actual  cost  even  in  the  case  of  land.  It  held  that 
the  value  of  the  property  must  be  determined  as  of  the  time  when 
the  inquiry  was  made  regarding  rates  ;  that  the  company  w^as  entitled 
to  the  benefit  of  any  increase  of  value.  That  is  in  harmony  with 
general  rule  of  law  which  permits  the  owner  of  real  estate  to  profit 
by  any  increase  in  the  value  of  his  land.  Obviously,  however,  if  we 
are  to  uphold  the  rule  that  a  public  service  corporation  is  entitled  only 
to  a  reasonable  return,  and  that  the  public  are  entitled  to  be  served 
at  reasonable  rates,  we  must  apply  the  rule  of  reasonableness  to  the 
amount  of  the  investment,  as  was  done  in  the  San  Diego  Water  case. 
The  court  recognized  this,  for  it  said  there  might  be  an  exception  to  the 

1  Louisiana  R.R.  Compi.  vs.  Cumberland  Tel.  Co.,  212  U.S.  414.     [1909.] 
*  212  U.S.  19.     [1909.] 


COMMERCE  AND  INDUSTRY  543 

rule  where  the  property  had  increased  so  enormously  in  value  as  to 
render  a  rate  permitting  a  reasonable  return  upon  such  increased  value, 
unjust  to  the  public.  This  makes  the  reasonableness  of  the  amount 
allowed  for  value  of  the  property  depend  on  the  reasonableness  of 
the  rate  to  the  public ;  but  since  the  rate  must  afford  a  reasonable 
return  to  the  company  also,  we  are  at  once  reasoning  in  a  circle.  The 
basis  suggested  by  Mr.  Whitney,  in  his  argument  as  counsel,  seems  a 
better  one,  —  that  the  value  allowed  should  be  the  estimated  cost 
of  replacing  the  land  in  use  with  other  land  capable  of  accomplishing 
the  same  result.  Probably  no  one  would  contend  that  if  a  gas  com- 
pany had  been  so  fortunate  as  to  locate  its  works  at  the  corner  of  Broad 
and  Wall  Streets,  and  its  land  had  attained  the  enormous  value  that 
there  prevails,  it  should  be  entitled  to  a  return  from  its  gas  sales  on 
the  present  value  of  the  site.  Prudent  management  would  require 
removal  to  a  less  expensive  site  better  adapted  for  the  business. 

The  more  difficult  question  that  arose  in  the  Gas  Company  case  was 
the  valuation  of  the  franchise.  As  to  the  general  question  of  the  pro- 
priety of  including  the  value  of  the  franchise  in  the  valuation  of  the  prop- 
erty, the  opinion  gives  little  light.  All  that  was  decided  was  that 
it  was  proper  to  include  in  the  valuation,  the  value  attributed  with  the 
consent  of  the  state  to  the  franchises  at  the  time  of  the  consoHdation 
of  the  companies,  upon  which  investors  had  relied ;  and  that  it  was 
wrong  to  hold,  as  the  court  of  first  instance  did,  that  the  value  of  the 
franchise  had  increased  in  the  same  ratio  as  the  value  of  the  tangible 
property.  When  it  came  to  the  general  question,  the  court  said  that 
to  allow  for  increased  value  of  the  franchise  was  too  much  a  matter  of 
pure  speculation  and  also  opposed  to  the  principle  upon  which  such 
valuation  should  be  made.  Whether  the  court  meant  merely  that 
the  evidence  in  the  particular  case  was  not  sufficiently  certain  to  justify 
the  increased  valuation,  or  whether  it  meant  that  upon  principle 
the  valuation  of  the  franchise  ought  not  under  ordinary  circumstances 
to  be  included,  the  opinion  leaves  in  doubt. 

The  court  calls  attention  to  the  fact  that  the  franchise  was  subject 
to  the  legislative  right  to  so  regulate  the  price  of  gas  as  to  permit  no 
more  than  a  fair  return  upon  the  reasonable  value  of  the  property.  It 
would  have  been  but  a  step  to  hold  that  to  base  the  return  to  the  com- 
pany upon  the  value  of  such  a  franchise  would  be  impossible,  since 
the  value  of  the  franchise  in  turn  depended  on  the  rates.  The  two 
being  dependent,  one  on  the  other,  neither  could  furnish  a  substantial 
basis  for  fixing  the  other.  As  Judge  Savage  well  said  in  a  case  in 
Maine ^  "to  say  that  the  reasonableness  of  rates  depends  upon  the  fair 
value  of  the  property  use  and  that  the  fair  value  of  the  property  used 
depends  upon  the  rates  which  may  be  reasonably  charged  seems  to 
be  arguing  in  a  circle."     There  is,  however,  as  he  points  out,  a  sense 

1  Brunswick  &  T.  Water  District  vs.  Maine  Water  Co.,  59  Atl.  Rep.  537.     [1004I 


544  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

in  which  the  value  of  the  franchise  must  be  considered.  It  is  the 
franchise,  the  right  to  operate,  and  if  possible  to  earn  a  dividend,  that 
makes  the  difference  between  a  lot  of  junk,  —  old  rails,  pipes,  and  the 
like,  —  not  worth  recovering  from  their  situation  in  and  upon  the 
ground,  and  a  completed  plant,  railroad,  water  works,  gas  works,  as  the 
case  may  be.  This  is  a  part  of  the  value  of  a  going  concern,  the  allow- 
ance for  which  the  court  refused  to  pass  upon  in  the  Knoxville  Water 
Co.  case.  Even  though  the  franchise  is  revocable,  the  fact  that  the 
plant  has  a  legal  right  to  exist  gives  added  value  to  the  physical 
structures.  The  value  of  a  rightfully  existing  structure  which  may  be 
lawfully  used  is  very  different  from  the  value  of  the  same  structure 
without  the  legal  right  to  use  it  for  the  purpose  for  which  it  was  as- 
sembled. Quite  recently,  in  the  valuation  of  the  Omaha  Water  Works,^ 
the  court  has  expressly  approved  an  appraisal  of  the  value  as  a  going 
concern.  "The  difference  between  a  dead  plant  and  a  live  one," 
said  Justice  Lurton,  "is  a  real  value,  and  is  independent  of  any  fran- 
chise to  go  on,  or  any  mere  good  will  as  between  such  a  plant  and  its 
customers." 

Although  ordinarily  the  value  of  a  franchise  is  not  enhanced  by  the 
prospective  profit  from  any  particular  schedule  of  rates,  there  is  an 
exception  where,  by  reason  of  a  contract  protected  by  the  contract 
clause  of  the  federal  constitution,  the  corporation  may  continue  to 
charge  specified  rates  for  a  definite  time.^  The  courts  insist  on  finding 
the  elements  of  a  contract  as  they  would  between  individuals.  There 
must  be  an  agreement  upon  sufficient  consideration.  Where  the 
contract  is  made  by  a  municipality,  there  must  be  legislative  authority 
in  the  municipality  to  make  the  contract ;  and  such  legislation  is  con- 
strued strictly  in  favor  of  the  public ;  authority  to  fix  and  determine 
rates  does  not  authorize  a  municipality  to  make  a  bargain  by  which  it 
ties  itself  up  for  the  future.^  Another  exception  may  be  suggested,  — 
the  investment  by  present  owners  in  reliance  upon  the  continuance  or 
value  of  the  franchise.  To  what  extent,  if  at  all,  this  element  may 
enter  into  the  calculation  has  not  been  expressly  decided,  nor  does  the 
Gas  Company  case  settle  the  question.  It  settles  indeed  that  under 
some  circumstances  such  allowance  must  be  made ;  but  no  attempt  is 
made  to  define  the  circumstances  with  precision. 

1  Omaha  vs.  Omaha  Water  Co.,  218  U.S.  180.     [igio.] 

2  Los  Angeles  vs.  Los  Angeles  City  Water  Co.,  177  U.S.  558  (igoo) ;  Detroit  vs.  Detroit 
Citizens  Street  Railway  Co.,  184  U.S.  368;  Cleveland  vs.  Cleveland  City  Ry.  Co.,  194  U.S. 
517  (ig04) ;  Cleveland  vs.  Cleveland  Electric  Railway  Co.,  201  tl.S.  529  (igo6) ;  Vicks- 
burg  vs.  Vicksburg  Water  Works  Co.,  206  U.S.  496  (1907).  See  also  New  Orleans  Water 
Works  Co.  vs.  Rivers,  115  U.S.  674  (18S5)  (sustaining  an  exclusive  right  to  supply  water) ; 
New  Orleans  Gas  Co.  vs.  Louisiana  Light  Co.,  115  U.S.  650  (1885) ;  (sustaining  an  exclusive 
right  to  supply  gas) ;   Walla  Walla  vs.  Walla  Walla  Water  Co.,  172  U.S.  i  (i8g8). 

^Freeport  Water  Co.  vs.  Freeport  City,  180  U.S.  587  (1901);  Danville  Water  Co.  vs. 
Danville  City,  180  U.S.  6ig  (igoi) ;  Rogers  Park  Water  Co.  i'5.  Fergus,  180  U.S.  624  (igoi) ; 
Knoxville  Water  Co.  vs.  Knoxville,  i8g  U.S.  434;  Home  Telephone  Co.  vs.  Los  .Angeles,  211 
U.S.  265  (igoS). 


COMMERCE  AND   INDUSTRY  545 

The  court  held  that  the  Gas  Company  case  was  not  one  for  the  valua- 
tion of  good  will  because  the  complainant  had  a  monopoly  in  fact  and 
the  consumer  must  take  gas  from  it  or  go  without ;  he  must  resort 
to  the  old  stand  whether  he  would  or  no.  The  court  held  also  that 
there  was  no  particular  rate  of  compensation  which  must  in  all  cases 
and  in  all  parts  of  the  country  be  regarded  as  sufificient  for  capital 
invested  in  business  enterprises  ;  the  amount  of  risk,  the  locality  where 
the  business  is  conducted,  the  rate  expected  and  usually  realized  there 
upon  investments  similar  in  character,  were  all  mentioned  as  factors, 
and  it  was  held  that  under  the  circumstances  of  the  gas  business  in 
the  City  of  New  York,  six  per  cent  was  a  proper  return. 

The  element  of  wages  of  superintendence,  which  Mr.  Whitney  in 
his  argument  conceded  must  be  covered  by  the  returns  to  the  company, 
was  left  out.  In  one  sense  this  is  not  a  return  upon  capital,  but  wages 
of  labor,  and  if  it  were  possible  for  earnings  due  to  the  skill  with  which 
the  business  is  managed  to  be  secured  to  those  alone  whose  skill  pro- 
duced the  result,  perhaps  no  more  need  be  said.  Practically,  however, 
the  earnings  depend  in  part,  sometimes  in  large  part,  not  upon  the 
skill  in  actual  present-day  management,  but  upon  the  satisfaction 
with  which  the  public  has  been  served  in  the  past,  perhaps  by  men  long 
since  dead.  Given  equal  and  reasonable  rates,  one  company  will  be 
able  to  earn  large  dividends,  and  another  perhaps  unable  to  pay  its 
way ;  and  this  result  may  be  due  not  to  any  less  efficient  management, 
but  merely  to  the  fact  that  one  has  been  long  in  satisfactory  operation, 
while  the  other  is  new  and  not  yet  in  vogue.  The  greater  earnings  of 
the  one  may  even  be  due  to  the  mere  caprice  of  fashion.  But  to  what- 
ever cause  it  is  due,  difficulty  will  arise  unless  allowance  be  made,  either 
by  increasing  the  capital  valuation  on  which  the  company  is  permitted 
to  earn  a  return,  by  way  of  a  valuation  of  a  going  concern, or  the  value 
of  the  probabiUty  of  an  already  assured  income,  or  else  by  allowing  an 
additional  return  on  the  valuation  minus  this  increment,  by  way  of 
extra  compensation  for  the  greater  skill  or  the  greater  satisfaction  with 
which  it  serves  the  pubhc.  Even  in  the  case  of  so  close  a  monopoly 
as  the  Gas  Company  in  New  York  City,  it  is  not  impossible  that 
some  of  its  earnings  may  have  been  due  to  this  cause ;  for,  although 
it  had  a  monopoly  of  the  supply  of  gas  through  pipes  in  the  streets, 
it  may  have  had  competition,  in  the  supply  of  hght,  heat,  and  power, 
from  the  electric  companies.  Although  legally  permissible,  it  would 
often  be  impracticable  to  cut  down  rates  to  a  level  that  would  afford 
a  fair  return  to  one  company  upon  a  valuation  that  failed  to  take  into 
account  the  element  of  value  of  a  going  concern  or  an  assured  income, 
without  ruining  its  weaker  competitor.  In  some  cases  such  lowering 
of  rates  would  prove  inadvisable,  especially  in  the  case  of  railroads. 
One  road  may,  through  fortunate  investments,  the  discovery  of  valuable 
minerals  along  its  route,  the  opening  of  fertile  territory,  and  a  rapid 


546    TENDENCIES  TOWARD   FEDERAL  CONTROL  OF 

increase  of  population,  prove  a  highly  profitable  investment ;  another 
at  the  same  rates  may  barely  pay  its  way ;  yet  to  cut  down  rates  on 
the  prosperous  road  so  as  to  reduce  its  high  dividends  to  a  normal 
level,  would  emphasize  and  accentuate  the  advantage  already  pos- 
sessed by  those  along  its  line  over  those  along  the  line  of  the  less  pros- 
perous road.  Either  the  prosperous  road  must  be  allowed  to  earn  a 
higher  return  upon  the  valuation,  or  the  valuation  must  allow  for  these 
elements. 

Up  to  the  present  time,  the  United  States  Supreme  Court  has  not 
been  called  upon  to  decide  what  elements  are  proper  to  be  considered 
in  determining  the  present  value  of  a  plant  of  a  public  service  company. 
That  the  value  of  the  plant  as  a  going  concern,  not  only  ready  for 
business  but  with  business  actually  established,  is  greater  than  the  bare 
cost  of  reproduction  of  the  physical  plant,  is  recognized  by  cases  in 
other  courts.  It  must  be  so,  leaving  out  of  view  altogether  the  ele- 
ment of  good  will,  which  in  the  case  of  a  strict  monopoly  ought  to  be 
disregarded.  A  going  concern  has  necessarily  expended  money  in 
various  ways  aside  from  the  cost  of  physical  plant  in  order  to  get 
going.  The  cost  of  promotion  of  the  enterprise,  of  corporate  organiza- 
tion, of  obtaining  the  necessary  franchises,  permissions,  and  consents, 
of  securing  the  necessary  connections  with  other  companies  by  rail  or 
wire ;  the  cost  of  experiments  necessary  in  every  new  industry,  and 
the  often  rapid  substitution  of  improved  appliances  before  the  cost  of 
the  old  can  have  been  recouped  out  of  earnings ;  the  cost  of  developing 
the  business  including  the  oft-times  necessary  loss  attending  the  in- 
complete stage  of  the  plant,  or  the  introduction  of  new  appliances 
and  methods ;  the  cost  of  financing  the  enterprise,  including  interest 
on  capital  sunk  before  any  returns  begin  to  come  in,  —  all  go  to 
make  up  the  cost  of  a  complete  going  plant,  and  are  all  expenses  that 
a  new  enterprise  must  needs  incur. 

The  United  States  Supreme  Court  has  not  as  yet  been  called  upon 
to  analyze  the  costs  of  operation  and  to  decide  what  items  of  cost  of 
operation  ought  to  be  included  in  the  annual  charges  before  the  profit 
can  be  ascertained.  Professor  Wyman  has  dealt  with  the  subject  in 
a  satisfactory  way  ^  and  the  scope  of  this  article  does  not  call  for  its 
further  discussion. 

The  question  presented  by  a  schedule  of  rates  under  the  Fourteenth 
Amendment,  is  whether  the  schedule  permits  a  fair  return  upon  a 
reasonable  valuation  or  is  so  low  as  to  amount  to  confiscation.  This 
involves  different  considerations  from  those  involved  when  the  only 
question  is  the  propriety  of  the  rate  on  a  single  article.  It  cannot  be 
foretold  what  effect  a  change  of  certain  rates,  for  example  on  coal  or 
gas,  will  produce  on  the  net  revenue  of  the  business  as  a  whole.  This 
difl&culty  has  been  met  by  the  adoption  of  a  tentative  course,  leaving 

1  Wyman  on  Public  Service  Corporations,  Sect.  1150. 


COMMERCE  AND  INDUSTRY  547 

it  for  time  and  experience  to  determine  whether  constitutional  rights 
have  been  infringed.^ 

A  most  serious  difficulty  is  presented  by  our  dual  form  of  government. 
It  is  beyond  the  scope  of  the  present  discussion  to  treat  the  numerous 
cases  dealing  with  the  commerce  clause,  and  the  question  what  is 
interstate  and  what  is  intrastate  commerce.  The  net  return  to  a 
railroad  company,  —  and  it  is  to  railway  traffic  that  the  questions  most 
frequently  relate,  —  depends  on  the  relation  between  its  income  from 
whatever  source  derived  and  its  outgoes  whether  for  the  conduct  of 
interstate  or  intrastate  business.  The  two  are  inextricably  inter- 
mingled, and  the  problem  of  preserving  the  rights  and  powers  of  both 
the  state  and  the  federal  governments  is  one  of  the  problems  of  the 
future. 


THE  CONTROL  OF  CONGRESS  OVER  MANUFACTURE 
AND  PRODUCTION  2 

By  Thomas  H.  Calvert 

(Chapter  IV  of  "  Regulation  of  Commerce  under  the  Federal  Constitution," 
by  Thomas  H.  Calvert.     (Copyrighted)  Edward  Thompson  Co.,  1907) 

As  the  power  delegated  to  Congress  is  hmited  to  "commerce  with 
foreign  nations,  and  among  the  several  States,  and  with  the  Indian 
tribes,"  there  is  an  internal  commerce  which  is  subject  to  the  exclusive 
control  of  the  States.  The  principle  that  manufacture  and  production 
are  not  commerce  was  clearly  stated  by  Mr.  Justice  Lamar  in  Kidd  vs. 
Pearson.^  He  said:  "No  distinction  is  more  popular  to  the  common 
mind,  or  more  clearly  expressed  in  economic  and  political  literature, 
than  that  between  manufactures  and  commerce.  Manufacture 
is  transformation  —  the  fashioning  of  raw  materials  into  a  change  of 
form  for  use.  The  functions  of  commerce  are  different.  The  buying 
and  selling  and  the  transportation  incidental  thereto  constitute 
commerce ;  and  the  regulation  of  commerce  in  the  constitutional  sense 
embraces  the  regulation  at  least  of  such  transportation."  And  it 
was  said  by  Chief  Justice  Fuller,  in  U.S.  vs.  E.  C.  Knight  Co.,"*  that 
"Commerce  succeeds  to  manufacture,  and  is  not  a  part  of  it." 

In  the  Kidd  vs.  Pearson  case,  supra,  it  was  held  that  a  statute  of 
Iowa  which,  as  construed  by  the  State  Supreme  Court,  provided  that 

1  Willcox  vs.  Consolidated  Gas  Co.,  212  U.S.  19 ;  Northern  Pacific  R'y  vs.  North  Dakota, 
216  U.S.  579. 

^  Copyrighted. 

3  (1888)  128  U.S.  I. 

Packing  houses  are  not  engaged  in  interstate  commerce.  U.S.  vs.  Boyer,  (1898)  85 
Fed.  Rep.  425. 

*  (1895)  156  U.S.  I. 


548    TENDENCIES  TOWARD   FEDERAL   CONTROL  OF 

intoxicating  liquors  might  be  manufactured  and  sold  within  the  State 
for  chemical,  medicinal,  culinary,  and  sacramental  purposes,  but 
for  no  other  —  not  even  for  the  purpose  of  transportation  beyond 
the  limits  of  the  State  —  was  within  the  police  power  of  the  State,  and 
that  one  who  manufactured  liquors  exclusively  for  exportation  and 
sale  outside  the  State  was  within  the  prohibition  of  the  statute.  The 
court  distinctly  recognized  and  applied  the  rule  that  the  fact  that  an 
article  is  manufactured  for  export  to  another  State  does  not  of  itself 
make  it  an  article  of  interstate  commerce  within  the  meaning  of  the 
Constitution.^ 

This  question  of  the  power  of  a  State  to  control  corporations  en- 
gaged in  manufacture  was  raised  in  a  peculiar  way  under  a  statute  of 
Wisconsin  requiring  that  a  company  incorporated  elsewhere  file  a  copy 
of  its  charter  with  the  Secretary  of  State,  and  pay  a  small  fee  as  a  con- 
dition of  doing  business  there.  A  foreign  corporation  entered  into  a 
contract  within  the  State  for  the  erection  of  a  factory  to  be  operated 
under  the  super\dsion  of  the  officers  of  the  foreign  corporation,  and  the 
fact  that  the  product  was  intended  to  be  used  outside  the  State,  and 
that  indeed,  very  little  could  be  used  within  the  State,  was  held  not  to 
exempt  the  foreign  corporation  from  compliance  with  the  requirements 
of  the  State  statutes.^  An  Ohio  statute  allowing  the  manufacture  and 
sale  of  oleomargarine  when  free  from  any  coloring  matter  or  other  in- 
gredient causing  it  to  look  like  or  to  appear  to  be  butter  as  defined  in 
the  statute,  and  expressly  forbidding  the  manufacture  or  sale  within 
the  State  of  any  oleomargarine  which  contained  any  methyl  orange, 
butter  yellow,  annotto,  aniline  dye,  or  any  other  coloring  matter,  was 
held  not  to  violate  this  clause  when  all  the  acts  of  the  corporation  which 
were  complained  of  related  to  oleomargarine  manufactured  by  it  in 
the  State  of  Ohio,  in  violation  of  the  laws  of  that  State,  and  therefore 
operated  on  the  corporation  within  the  State  and  affected  the  product 
manufactured  by  it  before  it  had  become  a  subject  of  interstate 
commerce.^ 

In  Addyston  Pipe,  etc.,  Co.  vs.  U.  S.'*  the  defendants  were  engaged 
in  the  manufacture,  sale,  and  transportation  of  iron  pipe  at  their  re- 
spective places  of  business  in  the  States  of  their  residence,  and  had 
entered  into  a  combination  among  themselves  by  which  they  agreed 
that  there  should  be  no  competition  between  them  in  any  of  the  States 
or  Territories  mentioned  in  the  agreement  in  regard  to  the  manu- 
facture and  sale  of  cast-iron  pipe.  Thus  provision  was  made,  not 
alone  for  the  manufacture  but  for  the  sale  of  the  manufactured  prod- 
uct, and  the  contract  directly  affected,  not  as  a  mere  incident  of 

*  Mugler  vs.  Kansas  (1887)  123  U.S.  623. 

2  Diamond  Glue  Co.  vs.  U.S.  Glue  Co.  (1903)  187  U.S.  611. 
8  Capital  City  Daity  Co.  vs.  Ohio  (1902)  183  U.S.  238. 

*  (1899)  17s  U.S.  211. 


COMMERCE  AND  INDUSTRY  549 

manufacture,  the  sale  of  the  articles  over  the  territory  embraced  in 
the  contract.  The  contract  was  held  to  be  within  the  terms  and 
purpose  of  the  Sherman  Anti-Trust  Act.^ 

It  was  urged  that  this  case  was  within  the  principle  of  the  decision 
in  the  E.  C.  Knight  Co.  case,  supra.  In  that  case  it  was  held  that 
although  the  American  Sugar  Refining  Company,  by  means  of  a 
combination,  had  obtained  a  practical  monopoly  of  the  business  of 
manufacturing  sugar,  yet  the  Act  of  Congress  did  not  touch  the  case, 
because  the  combination  related  to  manufacture  only  and  not  to  com- 
merce among  the  States  or  with  foreign  nations.  The  direct  purpose 
was  the  control  of  the  manufacture  of  sugar ;  there  was  no  combina- 
tion or  agreement,  in  terms,  regarding  the  future  disposition  of  the 
manufactured  article,  nothing  looking  to  a  transaction  in  the  nature 
of  interstate  commerce.  On  the  other  hand,  in  the  Addyston  Pipe, 
etc.,  Co.  case,  supra,  while  no  particular  contract  regarding  the 
furnishing  of  pipe  and  the  price  for  which  it  should  be  furnished  was 
in  the  contemplation  of  the  parties  to  the  combination  at  the  time 
of  its  formation,  yet  it  was  their  intention  to  increase,  directly  and 
by  means  of  such  combination,  the  price  for  which  all  contracts  for 
delivery  within  the  territory  embraced  by  the  contract  should  be 
made. 

As  giving  point  to  the  distinction  between  the  domestic  business  of  the 
defendants,  so  far  as  it  consisted  of  the  manufacture  and  sale  wholly 
within  their  respective  States,  and  that  part  of  their  business  which 
related  to  the  delivery  of  pipe  after  manufacture  from  their  respective 
States  to  the  other  States  and  Territories  covered  by  their  contract, 
the  court  modified  the  judgment  of  the  Court  of  Appeals  so  far  as  it 
included  in  its  scope  the  enjoining  of  the  defendants  from  combining 
in  regard  to  contracts  for  selling  pipe  in  their  own  State,  and  limited 
it  to  that  portion  of  the  combination  or  agreement  which  had  relation 
to  interstate  sales. 

And  as  adding  further  emphasis  to  this  distinction,  Mr.  Justice 
Harlan,  after  reviewing,  in  the  case  of  Northern  ■  Securities  Co.  vs. 
U.  S.,^  the  cases  which  had  been  decided  under  the  statute,  summarized 
the  propositions  deducible  therefrom,  and  having  special  reference  to 
the  question  decided  in  the  Addyston  Pipe,  etc.,  Co.  case,  supra,  said : 
"Although  the  Act  of  Congress  known  as  the  Anti-Trust  Act  has  no 
reference  to  the  mere  manufacture  or  production  of  articles  or  com- 
modities within  the  limits  of  the  several  States,  it  does  embrace  and 
declare  to  be  illegal  every  contract,  combination,  or  conspiracy,  in 
whatever  form,  of  whate\'er  nature,  and  whoever  may  be  parties  to 
it,  which  directly  or  necessarily  operates  in  restraint  of  trade  or 
commerce  among  the  several  States  or  with  foreign  nations.  .  .  . 

'  Act  of  Congress  of  July  2,  1890,  c.  64,  7  Fed.  Stat.  Annot.  336. 

2  (1904)  193  U.S.  197. 


550  TENDENCIES  TOWARD  FEDERAL  CONTROL  OF 

Combinations  even  among  private  manufacturers  or  dealers  whereby 
interstate  or  international  commerce  is  restrained  are  equally  embraced 
by  the  Act." 

The  power  of  Congress  in  some  measure  indirectly  to  regulate  pro- 
duction and  manufacture  must  be  conceded.  By  denying  the  facili- 
ties of  interstate  transportation  in  the  case  of  commodities  which  have 
not  been  manufactured  under  federal  supervision,  this  object  may  be 
attained.  To  insure  the  interstate  and  foreign  trade  in  pure  and 
unadulterated  foods,  and  to  prevent  frauds  upon  purchasers  of  goods, 
which  are  upon  the  interstate  and  foreign  market,  Congress  would 
seem  to  have  ample  power.  But  there  must  be  some  limit,  some 
line  of  demarcation  between  the  power  of  Congress  and  of  the  States, 
in  controlling  the  processes  of  manufacture,  beyond  which  Congress 
cannot  step.  That  there  must  be  a  limit  to  the  power  of  Congress  in 
this  regard  is  evident  both  from  the  nature  of  the  subject  and  from  the 
judicial  recognition  and  insistence  that  manufacture  is  not  commerce, 
or,  at  any  rate,  that  in  and  of  itself  it  is  a  matter  of  domestic  concern. 

The  remark  of  Chief  Justice  Fuller,  that  "commerce  succeeds  to 
manufacture,"  in  the  E.  C.  Knight  Co.  case,  supra,  is  very  suggestive 
in  this  connection.^  It  will  have  been  noticed  that  in  the  Addyston 
Pipe,  etc.,  Co.  case,  supra,  while  the  contract  or  combination  was 
entered  into  with  respect  to  articles  to  be  thereafter  manufactured, 
the  contract  nevertheless  had  reference  to  contracts  of  sale  and  de- 
livery in  other  States  and  Territories  than  those  in  which  the  respective 
manufacturers  resided,  and  as  it  tended  to  restrain  interstate  trade 
in  those  articles,  in  violation  of  the  statute,  the  conspirators  were 
enjoined  from  carrying  out  that  part  of  their  contract,  but  neither 
their  right  to  manufacture  nor  their  purely  domestic  trade  could  be 
affected  by  a  federal  statute.  .  And  in  the  supposed  cases  of  indirect 
interference,  by  denying  the  privileges  of  interstate  transportation 
in  the  interest  of  the  consumer,  the  exercise  by  Congress  of  such  a  right 
would  seem  to  be  referable  to  a  power  in  the  nature  of  an  ultraconstitu- 
tional  or  federal  police  regulation.  To  the  extent  that  manufacturers, 
in  so  far  as  their  business  is  concerned  in  finding  an  interstate  or  foreign 
market  for  their  products,  may  be  subject  to  the  rules  prescribed  by 
Congress  by  which  that  commerce  shall  be  governed,  as  by  the  rule 
of  free  competition,  and  to  such  regulations  as  may  be  adopted  to 
insure  the  quality  of  the  articles  transported  and  for  the  prevention 
of  fraud  and  imposition  —  to  this  limit,  the  power  of  Congress  may 
probably  be  exerted. 

But  if,  under  the  guise  of  its  power  to  regulate  interstate  and  foreign 

1  As  is  also  that  of  Chief  Justice  Waite,  that  "commerce  has  nothing  to  do  with  land 
while  producing,  but  only  with  the  product  after  it  has  become  the  subject  of  trade," 
made  in  McCready  vs.  Virginia  (1876)  94  U.S.  391,  wherein  the  right  of  a  State  to  grant 
the  exclusive  use  of  the  land  under  its  waters  to  its  own  citizens  for  the  propagation  of 
oysters  was  afiBrmed. 


COMMERCE  AND  INDUSTRY  551 

transportation,  Congress  were  to  attempt  to  control  the  processes  of 
production  and  manufacture,  with  the  avowed  or  ostensible  purpose 
of  regulating  matters  which  are  of  purely  domestic  or  local  concern, 
and  with  no  federal  policy  to  be  promoted,  it  must  be  that  the  line, 
faint  though  it  be,  which  marks  the  boundary  of  federal  and  State 
power,  would  seemingly  be  overstepped.  For  instance,  labor  laws, 
strictly  so  called,  are  assuredly  matters  of  State  regulation.  It  may 
be,  in  order  to  secure  the  purity  or  quality  of  articles  to  be  transported 
from  one  State  to  another  and  to  foreign  countries,  that  Congress 
can  prohibit  the  transportation  of  articles  which  have  not  been  pro- 
duced under  conditions  guaranteeing  their  purity  and  fitness  for  con- 
sumption, and  can  probably  stipulate  for  the  freedom  from  certain 
diseases  of  the  persons  employed,  as  well  as  for  the  sanitary  conditions 
of  the  premises.  Here  there  would  be  an  element  of  the  federal 
policy  —  a  national  guaranty  of  the  quality  of  the  article.  But 
federal  laws  regulating  the  hours  of  labor  and  prohibiting  the  employ- 
ment of  children,  and  making  a  conformity  to  those  laws  a  condition 
to  the  interstate  transportation  of  the  goods  manufactured,  proper  sub- 
jects of  regulation  though  these  may  be,  can  have  no  relation  to  any- 
thing more  than  matters  of  local  concern,  as  it  is  difhcult  to  see  how 
such  regulations  can  be  embraced  by  any  conceivable  rule  of  commerce, 
or  how  they  can  be  considered  such  police  regulations  as  would  serve 
any  distinctively  federal  purpose. 


USURPATION  IN  ADMINISTRATIVE  LAW 

By  Franklin  Pierce  of  the  New  York  Bar 

(Reprinted  from  Pierce's  "  Federal  Usurpation  "  (Chapter  X)  by  permis- 
sion.    Copyright,  1908,  by  D.  Appleton  and  Company.) 

This  chapter  presents  the  more  cautious  view  of  the  question  of  centrali- 
zation of  legislative  power  over  business.  —  Editor's  Note. 

In  no  branch  of  law  to-day  is  there  so  great  necessity  for  clear  and 
definite  ideas  as  in  administrative  law.  The  numerous  commissions 
described  in  the  last  chapter,  their  existence  in  every  state  of  the  Union, 
the  rapidity  of  their  growth,  the  complexity  of  modern  commercial 
life,  the  power  of  interstate  commerce  commissions  to  fix  the  rates  of 
railways,  the  multiplication  of  commissions  in  the  national  govern- 
ment, the  imperial  domain  peopled  by  tens  of  millions  of  people,  and 
the  great  consolidation  of  economic  interests,  together  with  the  im- 
patience of  our  people  for  quick  results,  are  all  forces  which,  unless 
checked,  will  increase  the  field  of  administrative  law.     Just  in  pro- 


552    TENDENCIES  TOWARD   FEDERAL  CONTROL  OF 

portion  as  it  is  increased  the  rights  and  liberties  of  the  citizen  will  be 
abridged. 

The  nature  of  administrative  law  can  be  better  determined  by  a 
description  of  its  sources  and  its  operation  than  by  a  definition.  Ad- 
ministrative law  is  made  by  the  rulings  of  a  multitude  of  commissioners, 
and  the  heads  and  officials  of  departments  in  both  the  national  and 
state  governments.  It  involves  the  administration  of  all  these  com- 
missions and  departments.  Private  law  regulates  the  relations  of 
individuals  between  themselves  and  is  administered  by  the  courts. 
Administrative  law,  in  the  main,  regulates  the  relations  between  the 
individual  citizen  in  the  state  and  the  state  itself  as  represented  by 
its  officials.  Of  course  this  does  not  include  criminal  law  nor  constitu- 
tional law,  but  administrative  law  is  the  supplemental  and  detailed 
application  of  all  laws  passed  pursuant  to  the  Constitution,  and  in- 
cludes the  nature  of  the  relations  between  the  administration  and  its 
agents,  on  the  one  side,  and  the  private  citizen,  on  the  other,  whenever 
he  comes  in  contact  with  mere  administrative  officers.  The  making 
of  by-laws,  the  assessment  of  taxes,  the  fixing  of  rates  by  the  Interstate 
Commerce  Commission,  the  decisions  of  the  Secretary  of  War  re- 
quiring the  removal  or  alteration  of  bridges  upon  the  ground  that  they 
have  become  an  obstruction  of  navigation,  the  decision  of  each  of 
the  heads  of  departments  the  determination  of  values  of  imported 
goods  by  the  customs  appraisers,  the  decisions  of  the  superintendent 
of  education,  the  boards  of  health,  the  boards  of  fish  and  game  pro- 
tectors, and  of  hundreds  of  commissions  created  under  the  national 
and  state  governments,  these  all  afford  illustrations  of  administrative 
law. 

The  number  of  commissions  has  been  so  great  in  recent  years  that  it 
may  be  well  said  that  we  have  government  by  commission.  In  1903 
alone,  about  one  hundred  and  forty  new  permanent  state  boards  and 
offices  were  created,  as  well  as  some  seventy-five  temporary  com- 
missions and  thirty-nine  investigating  committees.^  Scores  of  statutes 
are  being  passed  every  year  giving  to  governmental  agencies  more 
power  with  the  idea  of  remedying  abuses.  The  worse  the  abuse 
sought  to  be  remedied  the  greater  the  temptation  to  exercise  arbitrary 
power  by  the  commissions.  We  look  with  interest  to  the  Russian 
bureaucracy,  but  we  fail  to  observ^e  that  we  are  drifting  toward 
just  such  absolute  government  at  home.  We  are  a  republic  in  the 
Occident  ruled  largely  by  commissions,  and  an  empire  in  the  orient 
ruled  by  military  power.  From  year  to  year  we  are  adopting  precisely 
the  same  methods  of  bureaucratic  government  that  have  long  existed 
in  France,  Russia,  and  Prussia. 

One  of  the  most  terrible  abuses  of  administrative  law  in  recent  years 
was  involved  in  the  decision  of  the  United  States  Supreme  Court  in 
1  New  York  State  Library  Bulletin,  Review  of  Legislation,  1903. 


COMMERCE  AND  INDUSTRY  553 

the  case  entitled  United  States  against  Ju  Toy.^  Ju  Toy,  in  the  year 
1903,  was  a  passenger  on  the  steamship  Dorick,  returning  from  China 
to  San  Francisco.  The  immigration  officers  of  San  Francisco  detained 
him  as  a  person  not  allowed  to  enter  the  country  under  our  laws.  Ju 
Toy  declared  that  he  was  born  in  the  United  States,  had  always  lived 
here,  and  that  they  had  no  right  to  turn  him  over  to  the  master  of  the 
vessel  to  be  returned  to  China.  Now  observe  the  kind  of  a  hearing  he 
had.  The  rules  of  the  Immigration  Bureau  require  its  officers  to  pre- 
vent communication  between  a  Chinese  immigrant  and  any  one  aside 
from  the  immigration  officers.  They  conduct  a  private  examination 
to  determine  whether  he  has  the  right  to  land,  the  head  of  the  com- 
mission designating  the  only  witnesses  who  may  be  present  upon  the 
examination.  Generally  no  opportunity  is  given  to  the  person  to  pro- 
cure counsel.  After  such  a  hearing  as  this,  Ju  Toy  was  held  by  the 
Commissioner  of  Immigration  as  not  entitled  to  admission.  The  only 
remedy  for  such  a  decision  is  an  appeal  to  the  Secretary  of  the  Treas- 
ury.2  The  person  who  has  been  tried  and  found  not  entitled  to  enter 
the  country  must  take  this  appeal  within  two  days  after  the  decision. 
Within  three  days  thereafter  the  record  must  be  sent  to  the  Secretary 
of  the  Treasury  at  Washington.  The  rules  of  the  Department 
require  that  every  doubtful  question  shall  be  settled  in  favor  of  the 
government,  and  that  the  burden  of  proof  in  such  a  case  rests  upon 
the  person  claiming  the  right  of  admission.  The  Secretary  of  the 
Treasury  heard  this  appeal  and  affirmed  the  decision. 

Then  Ju  Toy  procured  a  writ  of  habeas  corpus  from  a  District  Judge 
of  the  United  States,  alleging  that  he  had  been  born  in  the  United 
States,  that  he  was  a  citizen  thereof,  that  he  had  gone  to  China  on  a 
visit,  and  that  he  had  returned  to  this  country  and  had  been  denied 
admission  by  the  head  of  the  Commission  of  Immigration,  that  an 
appeal  had  been  taken  to  the  Secretary  of  the  Treasury,  and  that  the 
decision  had  been  affirmed,  and  that  he  was  wrongfully  deprived  of 
his  liberty.  The  District  Judge  granted  the  writ  of  habeas  corpus, 
and  upon  the  return  thereof  the  Court  refused  to  dismiss  the  writ, 
but  appointed  a  referee  to  take  the  testimony  of  the  witnesses,  and 
report  his  findings  of  fact  as  to  whether  Ju  Toy  had  been  born  in  this 
country  and  was  a  citizen.  After  a  thorough  examination  the  referee 
found,  as  a  matter  of  fact,  that  Ju  Toy  was  a  citizen  of  the  United 
States,  and  this  decision  was  confirmed  by  the  District  Court. 

An  appeal  was  taken  from  this  decision  to  the  Circuit  Court  of  the 
United  States,  and  the  Court,  being  divided  as  to  the  correctness  of 
the  decision,  certified  interrogatories  to  the  United  States  Supreme 
Court.  The  important  question  certified  was  this;  "Should  the 
court  treat  the  fimding  and  action  of  such  executive  officers"  (referring 
to  the  Immigration  Commissioner  and  the  Secretary  of  the  Treasury) 

1  198  U.S.  253.  *  United  States  vs.  Sing  Tuck,  194  U.S.  161. 


554    TENDENCIES  TOWARD   FEDERAL   CONTROL  OF 

"  upon  the  question  of  citizenship  and  other  questions  of  fact  as  having 
l)cen  made  by  a  tribunal  authorized  to  decide  the  same  and  as  final  and 
conclusive,  unless  it  be  made  affirmatively  to  appear  that  such  officers, 
in  the  case  submitted  to  them,  abused  the  discretion  vested  in  them, 
or  in  some  other  way,  in  hearing  and  determining  the  same  com- 
mitted prejudicial  error."  The  United  States  Supreme  Court,  Mr. 
Justice  Holmes  writing  the  opinion,  found,  as  a  matter  of  law,  that  it 
mattered  not  whether  this  man  was  a  citizen  of  the  United  States  or 
not,  if  this  administrative  tribunal,  the  Commissioners  of  Immigration, 
decided  that  he  had  not  been  born  in  the  United  States,  and  was  not 
entitled  to  enter  the  country,  and  the  Secretary  of  the  Treasury  upon 
the  evidence  taken  confirmed  that  finding  on  appeal,  that  it  was  con- 
clusive, and  that  there  was  no  redress  for  Ju  Toy.  Justices  Brewer, 
Peckham,  and  Day  dissented.  Justice  Brewer  writing  a  vigorous 
opinion. 

So  we  have  this  condition :  if  a  Chinaman  is  born  in  the  United 
States  and  unquestionably  is  a  citizen  of  this  country,  and  goes  back 
to  China  for  a  visit  and  returns,  and  is  subjected  to  such  a  summary 
trial  as  to  citizenship  and  found  by  the  Immigration  Commissioner 
not  to  have  been  a  citizen,  and  the  papers  are  certified  to  the  Secre- 
tary of  the  Treasury  who  determines  that  the  decision  of  the  Com- 
missioner is  correct,  the  man  must  be  banished  from  the  country, 
although  he  is  a  citizen,  because  the  finding  of  the  Commission,  under 
such  circumstances,  is  conclusive  upon  him,  and  no  court  has  the  power 
to  interpose  and  protect  his  liberties. 

Outside  of  Russia  and  Turkey  there  is  not  a  country  in  Europe  to- 
day where  it  would  be  possible  for  such  a  wrong  to  occur.  The  result 
of  such  a  decision  is  so  far-reaching  in  its  effects  as  to  imperil  the 
liberty  of  every  citizen  in  this  country.  If  the  United  States  Supreme 
Court  can  make  the  decisions  of  such  administrative  bodies  binding 
upon  the  citizen,  under  rules  and  regulations  where  it  is  practically 
impossible  for  him  to  protect  himself,  and  he  can  be  banished  from  the 
country  and  deprived  of  his  constitutional  rights  in  this  manner,  his 
liberty  is  not  worth  a  fig.  The  learned  Justice  writing  this  opinion 
says:  "If,  for  the  purpose  of  argument,  we  assume  that  the  Fifth 
Amendment  applies  to  him,  and  that  to  deny  entrance  to  a  citizen  is 
to  deprive  him  of  liberty,  we  nevertheless  are  of  opinion  that  with 
regard  to  him  due  process  of  law  does  not  require  a  judicial  trial."  ^ 
Due  process  of  law  before  a  commission  —  without  an  opportunity 
to  talk  with  any  one  but  the  officers,  without  opportunity  to  procure 
witnesses,  without  chance  to  cross-examine  witnesses,  without  any 
counsel,  with  the  whole  matter  involving  a  right  almost  as  dear  as 
life  itself  disposed  of  summarily  by  administrative  officials  in  a  country 
where  the  Bill  of  Rights,  which  has  secured  to  Englishmen  their  liber- 

1  198  U.S.  263. 


COMMERCE  AND   INDUSTRY  555 

ties  for  hundreds  of  years,  is  made  a  part  of  the  Constitution?  The 
Hberty  of  the  citizen  is  indeed  precarious  if  this  is  due  process  of  law. 
Can  a  citizen  of  the  United  States  be  excluded  from  his  country 
except  in  punishment  for  a  crime?  Dreyfus,  under  military  rule  in 
France,  was  tried  by  court-martial,  found  guilty,  and  banished  to 
solitary  confinement  in  a  distant  island  of  the  Atlantic  ;  and  the  con- 
ditions of  his  conviction  showed  more  care  for  the  rights  of  a  citizen 
than  existed  in  this  case.  The  injustice  done  Dreyfus  eventually 
created  a  great  disturbance  even  in  France,  and  our  people  and  all 
other  liberty-loving  people  jeered  at  the  French  for  their  disregard  of 
the  liberties  of  a  citizen. 

Again,  Mr.  Justice  Holmes  says:  "It  is  unnecessary  to  repeat  the 
often  quoted  remarks  of  Mr.  Justice  Curtis,  speaking  for  the  whole 
court  in  Murray's  Lessee  vs.  Hoboken  Land  and  Improvement  Co., 
18  How.  272,  280,  to  show  that  the  requirement  of  a  judicial  trial  does 
not  prevail  in  every  case."  Yet  the  case  cited  by  the  learned  judge 
was  a  mere  distress  warrant  issued  by  the  solicitor  of  the  United  States 
Treasury,  involving  simply  the  rights  of  property,  and  the  court  in 
that  case  said:  "To  avoid  misconstruction  upon  so  grave  a  subject, 
we  think  it  proper  to  state  that  we  do  not  consider  Congress  can  either 
withdraw  from  judicial  cognizance  any  matter  which,  from  its  nature, 
is  the  subject  of  a  suit  at  the  common  law,  or  in  equity,  or  admiralty  ; 
nor,  on  the  other  hand,  can  it  bring  under  the  judicial  power  a  matter 
which,  from  its  nature,  is  not  a  subject  for  judicial  determination." 
Is  that  case  a  justification  for  banishing  a  man  from  his  own  country 
to  avoid  holding  that  a  mere  administrative  tribunal's  decision  was  not 
conclusive  ?  Thus  Ju  Toy  was  compelled  to  suffer  banishment,  and 
was  not  permitted  to  be  relieved  by  a  writ  of  habeas  corpus  even  after  a 
referee  had  reported  that  he  was  a  citizen  of  the  United  States. 

We  are  given  to  boasting  of  our  liberties.  We  pity  the  Chinamen 
subject  to  arbitrary  power.  The  Emperor  of  China  is  said  to  have 
the  right,  after  examination  and  determination  that  one  of  his  subjects 
had  committed  a  crime,  to  drive  bamboo  splinters  under  the  dis- 
respectful finger  nails  of  the  subject,  and  then  chop  off  his  head  to 
reUeve  the  pain.  Such  exercise  of  power,  however,  is  little  more  arbi- 
trary than  that  which  the  United  States  Supreme  Court  approved  in 
the  Ju  Toy  case.  We  are  told  in  these  days  that  the  law  should  be 
administered  upon  considerations  "of  what  is  expedient  for  the  com- 
munity concerned,"  and  "that  views  of  public  policy  should  control"  ; 
and  Mr.  Justice  Holmes,  in  the  Youth's  Companion,  some  time  ago 
said:  "A  system  of  law  at  any  time  is  the  result  of  present  needs 
and  present  notions  and  of  what  is  wise  and  right  on  the  one  hand, 
and  on  the  other  of  rules  handed  down  from  the  earliest  states  of 
society  and  embodying  needs  and  notions  which  more  or  less  have 
passed  away."     The  present  notions  of  men  as  to  what  is  wise  and 


556    TENDENCIES  TOWARD   FEDERAL   CONTROL  OF 

right  is  not  law,  and  to  allow  it  to  subvert  the  constitutional  guarantees 
of  personal  liberty  endangers  every  man's  freedom.  If  the  security 
which  the  Constitution  has  afforded  to  the  citizen  is  unnecessary,  and 
the  first  eight  amendments  embody  "needs  and  notions  which  more 
or  less  have  passed  away,"  then  the  people  should  be  allowed  to 
determine  that  question  and  not  the  courts.  Amendment  to  the 
Constitution  by  judicial  construction  is  simply  usurpation,  and  is 
especially  blameworthy  because  it  is  done  by  those  who  are  the 
guardians  of  the  people's  rights. 

The  truth  is  that  for  the  last  fifteen  years  momentous  changes  have 
been  going  on  of  which  the  people  take  little  note.  During  this  period 
the  rights  of  property,  through  the  decisions  of  the  courts,  have 
been  growing  more  and  more  sacred,  while  the  liberties  of  the  citizen, 
secured  to  him  by  constitutional  guarantees,  have  been  gradually 
impaired.  Let  us  observe  an  illustration  of  this  change.  In  January, 
1 89 1,  the  Appellate  Supreme  Court  of  Massachusetts,  in  the  case  of 
Miller  against  Horton,^  Mr.  Justice  Holmes  writing  the  opinion,  heki 
that  the  decision  of  the  Massachusetts  State  Commissioners  on  Con- 
tagious Diseases  among  Domestic  Animals  to  the  effect  that  the  plain- 
tiff's horse  was  affected  by  glanders  and  directing  the  Board  of  Health 
of  Rehoboth  to  kill  the  horse,  would  not  protect  the  Board  of  Health 
in  so  doing  if  it  turned  out  upon  the  trial  that  the  horse  was  not  affected 
by  glanders,  and  that  the  plaintiff  in  such  a  case  could  recover  damages 
from  the  members  of  the  board.  Now  a  man's  horse,  of  the  value  of 
perhaps  a  hundred  or  so  dollars,  was  involved  in  that  decision. 
A  man's  right  to  live  in  his  own  country  and  the  country  of  his  birth 
was  involved  in  the  Ju  Toy  decision.  In  the  one  case  the  de- 
cision of  the  Commission  on  Contagious  Diseases  is  held  not  conclusive. 
In  the  other  case  the  decision  of  the  Secretary  of  the  Treasury  is  held 
conclusive,  although  the  referee  appointed  by  the  District  Judge, 
upon  oral  evidence  taken  with  opportunity  for  cross-examination, 
had  reported  that  Ju  Toy  was  a  citizen,  and  his  report  had  been  con- 
firmed. Ju  Toy  has  no  legal  remedy  for  this  wrong.  He  cannot  sue 
the  Secretary  of  the  Treasury,  and  his  action  being  in  tort  is  not 
cognizable  before  the  Court  of  Claims.^ 

It  was  the  rights  of  man  which  engaged  the  attention  of  the  political 
thinkers  at  the  time  of  the  Declaration  of  Independence.  It  is  the 
rights  of  property  which  absorb  the  attention  of  the  courts  to-day. 
Power  when  interpreted  by  the  one  who  is  to  exercise  the  power  is 
always  construed  with  great  latitude.  The  Immigration  Commission 
and  the  Secretary  of  the  Treasury,  according  to  this  decision,  exercise 
exclusive  power,  and  the  tendency  is  to  increase  that  kind  of  power. 
Such  tribunals  generally  will  have  all  the  power  that  they  choose  to 

1  152  Mass.  540. 

*  Goodnow,  Comparative  Administrative  Law,  pp.  156-161. 


COMMERCE  AND   INDUSTRY  557 

exercise.  As  expressed  in  the  original  Constitution  of  Massachusetts, 
"A  frequent  recurrence  to  the  principles  of  the  Constitution  is  one  of 
the  things  absolutely  necessary  to  preserve  the  advantages  of  liberty 
and  to  maintain  a  free  government."  We  look  upon  our  government 
as  a  thing  established  and  capable  of  maintaining  itself  without  any 
personal  efforts  on  the  part  of  the  citizen.  The  power  to  check,  held 
by  these  commissioners,  is  often  extended  into  a  power  to  decree  and 
to  enact.  Their  exercise  of  power  is  purely  arbitrary  with  apparently 
no  limitation.  If  the  people  are  not  aroused  to  the  danger  of  the 
exercise  of  such  power  it  will  not  be  many  years  before  their  liberties 
are  subverted. 

Another  illustration  of  the  danger  of  government  by  the  decisions 
of  administrative  officers  is  found  in  the  provision  allowing  the  stop- 
page of  mail  by  fraud  orders.  Now  it  is  undoubtedly  true  that  the  mails 
are  frequently  used  for  improper  purposes,  that  obscene  matter  is  sent 
through  them,  that  rascals  who  should  be  in  state  prisons  employ 
them  to  carry  out  their  nefarious  schemes  for  defrauding  simple, 
credulous  people,  and  that  all  the  abuses  exist  which  Postmaster- 
General  Cortelyou  set  forth  in  a  recent  review  article.^  Usurpations 
of  power  spring  into  existence  to  suppress  just  such  wrongs  as  exist 
in  the  Post-ofhce  Department.  Government  always  finds  in  the  exist- 
ence of  similar  abuses  to-day  excuses  for  usurpation.  President  Adams 
and  Congress,  in  the  passage  of  the  Alien  and  Sedition  laws,  wxre 
seeking  to  correct  real  abuses.  The  conduct  of  the  French  immigrants, 
who  had  taken  advantage  of  our  gratitude  to  France,  was  such  as  to 
be  worthy  of  punishment.  It  was  the  unconstitutional  means  of 
securing  that  punishment  which  aroused  the  American  people,  brought 
about  the  defeat  of  the  Federalists,  and  placed  in  power  the  Demo- 
cratic party  for  over  fifty  years.  The  danger  of  arbitrary  power  is 
always  greater  where  the  purposes  for  which  it  is  exercised  are  good 
purposes,  because  the  great  majority  of  men  do  not  see  the  danger 
from  such  exercise  if  it  accomplishes  good  results.  In  no  other  way 
could  arbitrary  power  take  on  a  form  more  popular  with  good  men 
than  in  attempts  to  suppress  obscene  literature,  or  letters  and  pam- 
phlets intended  to  swindle  the  unwary.  Of  course  we  all  desire  that 
such  men  should  be  punished,  but  if  one  is  acquainted  with  human 
history  and  its  lessons  he  will  never  wish  even  such  evils  suppressed 
by  the  cx'  rcise  of  arbitrary  power. 

In  1836  President  Jackson  recommended  to  Congress  the  propriety 
of  a  law  to  exclude  from  the  mails  anti- slavery  literature  of  an  in- 
cendiary character.  Mr.  Calhoun,  condemning  in  the  strongest 
terms  such  publications,  insisted  that  Congress  had  no  such  power 
because  it  would  abridge  the  liberty  of  the  press.  Daniel  Webster 
acquiesced  in  this  opinion.     James  Buchanan,  at  that  time  Senator 

'  North  American  Review,  April  ig,  1907. 


5S8     TENDENCIES   TOWARD   FEDERAL   CONTROL  OF 

from  Pennsylvania,  supported  a  bill  of  this  character,  on  the  ground 
that  the  power  of  Congress  to  carry  mails  necessarily  involved  the 
right  to  exclude  such  mails  as  it  saw  fit.  This  bill  was  voted  down. 
The  Post-ofiice  Department  now  proscribes  the  use  of  the  mails  for 
the  carrying  of  obscene  matter  and  letters  or  pamphlets  intended 
to  defraud ;  and  also,  without  any  provision  of  law  sustaining  its 
action,  debars  from  the  mails  pamphlets  criticizing  the  acts  of  the 
national  government. 

Few  Americans  have  ever  given  so  much  time  to  the  reading  and 
studying  of  political  economy  and  other  kindred  subjects,  upon  which 
the  welfare  of  mankind  depends,  as  the  late  Edward  Atkinson,  of 
Boston.  For  thirty  years  or  more  before  his  death  he  never  failed  to 
espouse  the  cause  of  what  he  believed  to  be  just,  without  any  hope 
of  reward  except  the  consciousness  of  having  done  his  duty.  He 
believed  that  he  saw  in  the  imperialistic  policy  of  President  McKinley's 
administration  a  great  danger  to  his  country,  and  when  Mr.  Atkinson 
was  satisfied  that  his  purpose  was  a  good  one  he  was  absolutely  fearless 
in  carrying  out  that  purpose.  The  following  is  his  statement  of  what 
occurred  :  "In  the  latter  part  of  1898  I  privately  printed  a  pamphlet 
containing  two  treatises:  first,  'The  Cost  of  a  National  Crime,'  and 
second,  "The  Hell  of  War  and  its  Penalties.'  .  .  .  In  February,  1899, 
the  President  had  submitted  to  the  dictates  of  the  conspirators  against 
the  liberties  of  the  Philippine  Islands,  and  had  committed  '  criminal 
aggression'  upon  them.  These  facts  were  exposed  in  a  second  pam- 
phlet containing  a  third  treatise  entitled  '  Criminal  Aggression  —  By 
Whom  Committed?'  ...  I  then  learned  on  apparently  authentic 
information  that  the  volunteers  who  had  enlisted  for  the  War  with 
Spain  and  for  service  with  Cuba  had  been  sent  against  their  will  and 
against  their  convictions  of  right  to  the  Philippine  Islands  and  were 
there  held  in  service  after  their  terms  of  enlistment  had  expired,  which 
to  many  of  them  was  abhorrent.  I  also  learned  on  apparently  good 
authority  that  telegraphic  messages  from  their  relatives  in  this  country 
were  not  permitted  to  reach  them.  This  outrage  made  me  think  it 
suitable  to  send  copies  of  my  pamphlets  to  these  volunteers  who  were 
held  against  their  will  in  order  that  they  might  know  they  had  support 
in  the  maintenance  of  their  rights  in  this  country.  To  that  end  I 
addressed  a  letter  to  the  Secretary  of  War  asking  the  addresses  of 
the  different  regiments,  inclosing  copies  of  the  pamphlets  and  an- 
nouncing my  purpose  to  send  them  to  these  troops.  I  did  not  dis- 
criminate between  the  volunteers  and  the  soldiers  of  the  regular  army, 
but  should  not  have  sent  to  the  latter  lest  the  soldiers  themselves 
should  be  embarrassed  or  exposed  to  hazard  by  their  acceptance. 
After  waiting  a  sufficient  time  for  reply  from  Secretary  Alger,  I  mailed 
eight  copies  as  a  test  to  Admiral  George  Dewey,  Professor  Shurman, 
Professor  Worcester,  General  H.  G.  Otis,  General  Lawton,  General 


COMMERCE  AND  INDUSTRY  559 

Miller,  and  J.  F.  Bass,  correspondent  of  Harper's  Weekly.  The 
Secretary  of  War  did  not  answer  my  letter,  but  apparently  he  and  some 
of  his  associates  were  alarmed  by  my  action  lest  the  volunteers  held 
against  their  will  should  demand  relief  from  the  abhorrent  service 
of  slaughtering  our  allies,  and  at  the  instance  of  the  Postmaster-General 
the  Postmaster  in  San  Francisco  violated  the  United  States  mail 
and  took  these  pamphlets  from  it  without  authority  of  law  and  in 
\'iolation  of  the  rights  of  citizens." 

Now  there  can  be  no  doubt  that  there  was  nothing  in  the  pamphlet 
which  Mr.  Atkinson  sent  to  the  Secretary  of  War,  and  which  he  after- 
wards mailed  to  Admiral  Dewey,  Professor  Schurman,  Professor 
Worcester,  General  Otis,  and  the  others,  which  could  have  been  in- 
jurious to  them.  But  that  is  not  the  question.  He  had  the  legal 
right,  if  men  have  any  legal  rights  left  under  imperial  government,  to 
express  his  opinions  and  to  send  them  through  the  mail  to  any  man, 
and  yet  these  pamphlets  were  taken  from  the  mail  and  destroyed  by 
the  order  of  the  Postmaster-General  without  the  slightest  authority 
in  law. 

Let  us  now  observe  the  method  through  which  a  fraud  order  is 
issued  by  the  Post-ofhce  Department.  Inspectors  of  the  Department 
are  assigned  to  various  sections  of  the  country,  with  the  duty  to 
investigate  all  cases  in  their  districts  in  which  it  is  alleged  that  the 
mails  are  being  used  in  \dolation  of  the  law.  When  a  discovery  is  made 
by  these  inspectors  (and  what  inspector  or  police  ofl&cer  ever  lived  that 
could  not  discover  many  things  that  do  not  exist?),  in  the  language 
of  Mr.  Cortelyou :  "When  the  character  of  the  scheme  to  defraud  is 
such  that  its  continued  operation,  during  this  examination  and  con- 
sideration of  the  charges,  threatens  to  result  in  losses  to  the  public, 
temporary  orders  are  at  once  issued  to  the  Postmaster  simply  to  with- 
hold the  mail  pending  the  inquiry."  ^  So  to  start  with,  we  have  the 
mail  of  one  of  the  patrons  of  the  Post  Ofhce,  possibly  engaged  in  a  large 
business,  where  the  withholding  of  his  mail,  even  for  a  few  days,  may 
result  in  the  practical  destruction  of  his  business,  having  that  mail 
stopped  without  any  hearing  and  without  any  chance  of  explanation. 
The  man  who  engages  in  lynching  adopts  the  theory  of  killing  the 
suspected  person  and  then  trying  him  afterwards.  The  Postmaster- 
General  exercises  the  same  power  of  destroying  a  man's  business,  and 
then  giving  him  a  hearing  and  ascertaining  whether  he  is  guilty. 

Now  having  held  up  the  man's  mail,  the  inspector  reports  the  facts  to 
the  Assistant  Attorney-General  for  the  Post-ofhce  Department  and, 
as  Mr.  Cortelyou  says  :  "If  these  facts  establish  a  prima  facie  case  of 
fraud,  the  person  or  concern  involved  is  at  once  notified  of  the  pend- 
ency and  the  nature  of  the  charges  brought,  and  is  then  afforded  an 
opportunity  to  appear  before  the  Assistant  Attorney-General  for  the 

^  North  American  Revird',  .\pril  ig,  igo7,  p.  8og. 


56o    TENDENCIES  TOWARD   FEDERAL  CONTROL  OF 

Post-ofl5ce  Department,  either  in  person  or  in  writing,  or  both,  making 
such  answers  and  statements  as  it  may  be  desired  to  have  the  Depart- 
ment consider  in  disposing  of  the  matter."  Now  the  victim  of  such 
action  may  be  two  or  three  thousand  miles  distant  from  Washington. 
He  is  given  an  opportunity  to  be  heard  by  the  Assistant  Attorney- 
General,  who  has  already  passed  upon  the  case.  The  examination  is 
not  one  through  witnesses,  with  examination  and  cross-examination, 
but  is  in  fact  a  mere  formal  examination,  and  the  decision  of  the 
Assistant  Attorney-General  confirmed  by  the  Postmaster- General  is 
absolute,  as  in  the  Ju  Toy  case,  upon  the  rights  of  the  accused. 

The  right  to  do  business  is  a  legal  right.  Upon  this  right  is  founded 
most  of  the  injunctions  against  labor  unions  and  laborers  engaged  in 
a  strike.  Their  employers  are  carrying  on  the  business  of  manufactur- 
ing or  some  other  commendable  enterprise.  Their  men  strike,  they 
attempt,  possibly  by  forcible  means,  to  prevent  other  laboring  men 
from  taking  their  places,  and  the  employer  applies  to  the  court  for 
an  injunction,  which  is  granted,  because  the  right  to  do  business  is  a 
property  right,  and  the  action  of  his  late  employees  is  destructive  of 
that  right.  Now  apply  this  law  to  the  case  of  a  man  whose  mail  is 
stopped  by  a  fraud  order.  Such  an  order  practically  destroys  his 
business  even  before  a  hearing.  It  will  avail  him  little  to  go  before  the 
Assistant  Attorney-General,  because  upon  the  evidence  of  the  detective 
he  has  already  decided  the  case,  and  at  least  before  the  hearing  could 
be  had  the  man's  business  is  destroyed. 

In  1905  a  man  by  the  name  of  E.  G.  Lewis  was  carrying  on  in  the 
city  of  St.  Louis  a  business  known  as  the  People's  United  States  Bank. 
A  fraud  order  was  issued  against  him,  and  proceedings  were  taken  in 
the  United  States  Court  for  the  purpose  of  appointing  a  receiver  of 
his  corporation,  and  a  receiver  was  appointed.  The  fraud  order  was 
issued  against  both  the  corporation  and  Le\\is.  All  letters  thereafter 
addressed  to  him  personally  were  returned  with  the  usual  word 
"fraudulent"  stamped  thereon.  A  letter  from  his  wife,  from  his 
attorney,  from  any  close  friend  in  any  part  of  the  world,  would  have 
been  returned  with  the  word  "fraudulent"  stamped  upon  the  outside. 
This  fraud  order  actually  shut  him  off  from  any  intercourse  through 
the  mails  with  any  human  being  and  apparently  for  all  time. 

Mr.  Cortelyou  says  about  such  cases :  ^  "It  is  particularly  true,  too, 
that  comparatively  little  direct  evidence  can  be  brought  into  court 
against  the  majority  of  these  fraudulent  operators,"  and  he  tells  us 
that  it  is  very  difficult  to  find  e\adence  which  will  insure  the  con\dc- 
tion  of  such  operators.  We  are  also  assured  by  him  that  there  is 
much  justification  for  the  remark  recently  made  that  "the  Post-office 
Department  of  the  United  States  is  the  most  effective  agency  in  the 
world  for  the  detection  and  prevention  of  crime  and  the  apprehension 

*  North  American  Review,  April  19,  1907,  p.  812. 


COMMERCE  AND  INDUSTRY  561 

of  the  criminal."  ^  Now  what  have  we?  The  most  effective  agency 
in  the  world  for  the  detection  of  crime  is  able  to  obtain  little  evidence 
against  those  it  accuses,  and  yet  it  has  issued  since  the  enactment  of 
the  present  legislation  2,400  fraud  orders.  I  am  credibly  informed 
that  in  the  case  of  Mr.  Lewis  and  his  People's  United  States  Bank, 
upon  liquidation  by  the  receiver,  it  paid  one  hundred  cents  on  the 
dollar  with  interest  in  full  to  creditors,  together  with  dividends  to 
the  stockholders  of  eighty-five  per  cent. 

In  the  second  session  of  the  Fifty- ninth  Congress  a  bill  was  intro- 
duced into  the  House  of  Representatives  providing  that  the  mail  ad- 
dressed to  the  person  or  firm  against  whom  the  fraud  order  is  issued, 
instead  of  being  stamped  "fraudulent"  and  being  returned  at  once  to 
the  senders,  should  be  held  in  the  Post  Office  for  fifteen  days  before 
being  sent  back.  In  that  period  the  business  concern  was  permitted 
to  institute  an  action  in  the  United  States  Circuit  Court,  on  giving  a 
bond  to  pay  the  entire  costs  of  the  action  in  case  the  fraud  order  was 
finally  held  to  be  valid.  This  bill  passed  the  House  without  a  division, 
but  failed  to  pass  the  Senate.  When  the  wisdom  of  the  proposed 
act  was  being  discussed  before  the  Congressional  Postal  Commission, 
one  of  the  speakers  said  :  "We  are  expected  to  live  up  to  ruhngs,  regu- 
lations, and  decisions  that  we  are  unable  to  find  and  never  heard  of. 
The  publisher  is  informed  by  mail  that  he  has  violated  some  rule, 
that  his  pubUcations  can  be  no  longer  mailed  at  a  second-class  rate, 
but  the  rule  is  new  to  him.  His  paper  is  held  up  until  he  can  find  out 
what  is  the  matter.  .  .  And  when  he  has  his  hearing  he  finds  out  that 
it  is  a  purely  arbitrary  affair,  surrounded  by  none  of  the  safeguards 
which  are  allowed  other  American  citizens  who  are  contesting  for  their 
right  to  do  business."  Of  course  it  is  not  surrounded  by  any  of  the 
safeguards  allowed  other  American  citizens,  because  their  safeguards 
are  secured  to  them  by  laws  and  by  a  regular  judicial  procedure.  On 
the  other  hand,  administrative  tribunals,  at  least  in  our  own  country, 
have  always  been  arbitrary  tribunals  depriving  the  citizen  of  his  prop- 
erty and  his  good  name  without  any  of  the  safeguards  prescribed  by 
law. 

In  another  case,  where  the  publication  had  been  stopped  because  of 
alleged  obscene  matter,  an  acquaintance  of  the  publisher  sought  by 
repeated  letters  to  discover  what  the  precise  matter  in  the  publication 
was  which  the  Post-office  Department  regarded  as  objectionable. 
Finally  the  only  statement  which  he  could  procure  from  the  officials 
was  that  it  was  "not  practicable  for  the  department  to  attempt  to 
point  out  the  offensive  passages,"  and  they  practically  refused  to 
give  any  information  as  to  what  matter  contained  in  the  publication 
suppressed  was  regarded  by  them  as  offensive.  In  common-law 
courts  the  law  requires  the  facts  constituting  the  crime  to  be  specifically 

2  Ibid.  April  19,  1907,  p.  816. 


562     TENDENCIES   TOWARD   FEDERAL   CONTROL  OF 

stated  in  the  indictment  so  that  the  accused  may  know  exactly  the 
offense  with  which  he  is  charged.  He  is  given  the  processes  of  the 
court  to  procure  his  witnesses,  and  must  be  confronted  with  the  wit- 
nesses against  him.  How  different  is  all  this  from  administrative 
tribunals. 

This  proceeding  on  the  part  of  the  Postmaster-General  is  quite  as 
arbitrary  as  any  which  we  find  in  Russia,  Prussia,  or  Austria.  The 
Russian  censor  blots  out  the  objectionable  parts  of  the  newspapers 
and  permits  the  rest  to  go  through  the  mails.  But  our  censor  sup- 
presses the  whole  edition,  the  good  along  with  the  bad.  In  Austria 
the  business  of  printing  a  newspaper  cannot  be  carried  on  without  a 
license  from  the  government,  and  every  number  of  the  periodical 
must  be  submitted  to  the  police  before  publication,  so  it  may  be  con- 
fiscated if  it  contains  anything  contrary  to  law.  The  censor  is  said 
frequently  to  order  portions  of  the  columns  of  an  article  to  be  stricken 
out,  and  with  these  corrections  it  is  allowed  to  go  forth.  All  arbitrary 
governments  seek  to  control  the  press.  And  with  full  knowledge 
of  the  results  of  such  methods  we  are  deliberately  adopting  them. 
As  a  general  rule  no  man's  liberty  to  print  or  publish  ought  to  be  re- 
strained by  government  for  any  reason  short  of  thereby  protecting  the 
liberty  of  other  men.  So  important  is  the  public  discussion  of  ques- 
tions that  all  assaults  of  arbitrary  government  upon  liberty  have 
first  appeared  in  limitations  upon  the  press. 

Publications  entered  as  second-class  mail  matter  are  said  to  be  sub- 
ject to  no  less  than  seven  distinct  rates.  Such  discretion  reposed  in 
the  officials  of  the  Post  Office  is  wide  enough  to  allow  them  to  suppress 
all  periodicals  which  are  found  to  be  injurious  to  the  interests  that 
they  cherish.  Wilshire^s  Magazine  was  a  few  years  excluded  from  the 
mail  by  the  Post  Office  Department.  The  editor  then  took  his  maga- 
zine to  Canada,  where  he  had  no  difficulty  in  securing  its  entrance  to 
the  post  office.  Three  years  later  a  New  York  printer  sought  to 
contract  for  the  publication  of  this  magazine,  and  to  procure  its  rein- 
statement in  the  mails  of  this  country  applied  to  Senator  Piatt,  and 
the  boss  easily  succeeded  in  securing  at  once  what  years  of  labor  on 
the  part  of  Wilshire  had  failed  to  accomplish.  This  instance  shows 
the  danger  of  conferring  such  arbitrary  power  upon  a  department  of 
the  government.  The  Star  Chamber,  which  was  abolished  in  1641, 
had  as  one  of  its  special  functions  the  right  to  try  th.e  offenses  of  the 
press.  "Press  law  has  long  constituted,"  says  Mr.  Dicey,  "and  still 
continues  to  a  certain  extent  a  special  department  of  French  legislation, 
and  press  offenses  have  been,  under  every  form  of  government  which 
has  existed  in  France,  a  more  or  less  special  class  of  crimes."  ^  Under 
Napoleon  Bonaparte  no  one  could  print  a  paper  without  official 
authorization,  and  even  to-day  the  government  adopts  preventi\'e 

1  Dicey,  The  Law  of  the  Constitution,  p.  24S. 


COMMERCE  AND  INDUSTRY  563 

measures  for  guarding  against  the  propagation  of  unsound  or  dangerous 
sentiments. 

Yet  even  in  France  the  arbitrary  power  exercised  by  our  Post-oflEice 
Department  would  not  be  tolerated  for  a  moment.  The  Gaulois,  a 
Parisian  paper,  speaking  of  President  Roosevelt's  action  in  excluding 
from  the  mails  newspapers  printing  the  details  of  the  Thaw  trial,  said : 
"That  no  sovereign  in  Europe  unless  it  be  the  Czar  and  the  Sultan 
had  the  power  to  do  what  the  American  executive  had  done."  The 
Gil  Bias,  another  paper,  commented  upon  the  same  matter,  saying : 
"Imagine  President  Fallieres  interdicting  and  expurgating  such  an 
account."  If  publishers  must  run  the  gantlet  of  such  secret  and  irre- 
sponsible postal  supervision  the  freedom  of  the  citizen  would  seem  to 
be  greatly  impaired.  In  England,  from  whence  we  drew  our  principles 
of  English  liberty  and  where  happily  they  still  continue,  the  govern- 
ment has  no  authority  to  seize  the  stock  of  a  publisher  because  it 
consists  of  books,  pamphlets,  and  papers  which  in  the  opinion  of  the 
government  contain  seditious  or  dangerous  matter. 

There  are  many  other  instances  of  abuse  of  administrative  law.  One 
of  these  is  found  in  the  McKinley  Act  of  1890.  Discriminations  were 
being  made  in  Germany  against  American  meats.  The  act  provided 
that  sugar,  tea,  coffee,  molasses,  hides,  and  other  articles  should  be 
admitted  free  of  duty.  In  order  to  arm  the  government  with  means 
of  retaliation.  Congress  conferred  the  power  upon  the  President  that 
whenever  he  should  be  satisfied  that  unjust  discriminations  were 
being  made  by  any  foreign  state  against  the  importation  or  sale  of  any 
American  product,  he  might  by  proclamation  impose  duties  upon 
sugar,  tea,  coffee,  molasses,  hides,  or  any  other  articles  which,  by  the 
terms  of  the  McKinley  Bill,  were  admitted  free  from  the  country 
discriminating  against  us.  Thus  the  President  was  given  a  legislative 
power  belonging  to  the  popular  branch  of  the  legislature,  originally 
granted  for  the  protection  of  the  people  against  arbitrary  power.  The 
United  States  Supreme  Court,  however,  held  that  this  provision  of  the 
act  imposed  administrative  powers  upon  the  President  and  was  con- 
stitutional. Justices  Lamar  and  Fuller  dissenting.  Justice  Lamar  said : 
"It  goes  further  than  that  and  deputes  to  the  President  the  power  to 
suspend  another  section  in  the  same  act  whenever  'he  may  deem  the 
action  of  any  foreign  nation  producing  and  exporting  the  articles 
named  in  that  section  to  be  reciprocally  unequal  and  unreasonable' ; 
and  it  further  deputes  to  him  the  power  to  continue  that  suspension 
and  to  impose  revenue  duties  on  the  articles  named  'for  such  time  as 
he  may  deem  just.' "  ^ 

On  March  9,  1897,  Congress  created  a  commission  to  regulate  the 
importation  of  teas,  and  prohibit  them,  though  in  fact  pure,  when 
b.elow  the  standard  of  quality  fixed  by  the  Secretary  of  the  Treasury. 
'  Field  vs.  Clark,  143  U.S.  640. 


564       TENDENCIES  TOWARD   FEDERAL  CONTROL  OF 

That  tea  commission  is  now  engaged  in  the  exercise  of  that  dangerous 
power  of  requiring  the  reshipment  of  teas  which  do  not  reach  the 
quality  which  it  prescribes,  or,  in  case  they  are  not  reshipped,  of 
destroying  them.     This  act  also  has  been  declared  constitutional.^ 

There  is  no  such  thing  as  reviewing  the  action  of  these  administrative 
boards  according  to  the  decision  just  cited.  A  recent  writer  on  ad- 
ministrative law  observes  that  our  procedure  afTords  even  less  pro- 
tection from  the  arbitrary  action  of  these  boards  than  the  French  law, 
though  the  Bill  of  Rights  is  unknown  to  the  French  Constitution .^ 
According  to  the  statement  of  this  same  writer  state  courts  have  ad- 
mitted the  finality  of  the  decisions  of  boards  of  health  in  respect  to 
nuisances,  so  that  without  a  hearing  a  board  of  health,  in  many  of 
the  states,  has  been  declared  capable  of  determining  that  a  man's 
property  is  a  nuisance  and  binding  him  by  their  decision.  A  different 
rule,  however,  prevails  in  the  state  of  New  York.^  In  hundreds  and 
even  thousands  of  cases,  where  these  boards  are  acting  within  the  scope 
of  the  statute  creating  them  upon  the  subject  matter  therein  fully 
described,  their  decisions  are  final  and  are  not  subject  to  review  in 
the  courts.^  Mr.  Wyman,  who  is  enthusiastically  favorable  to  these 
commissions,  says,  however:  "Things  are  done  in  administrative 
adjudication  which  could  never  be  done  in  judicial  processes.  Prin- 
ciples are  violated  in  administrative  processes  which  are  fundamental 
in  the  courts."  ^ 

Ex  parte  proceedings  seem  to  be  just  as  binding  as  proceedings 
upon  notice.  Even  these  boards  have  extensive  legislative  power. 
So  when  a  fish  and  game  conmiission  determine  that  the  fish  of  any 
brook  or  stream  of  the  commonwealth  are  of  sufficient  value  to  warrant 
the  prohibition  of  casting  sawdust  into  the  stream  where  they  are 
found,  they  may  by  an  order  in  writing  prohibit  the  same  without 
giving  the  owner  any  hearing  upon  their  action.^  Although  the  execu- 
tive, legislative,  and  judicial  departments  are  carefully  divided  in  our 
form  of  government,  still  the  legislative  department  can  confer  execu- 
tive duties  upon  these  commissions  and  their  decisions  therein  are 
final.''  Judge  Jackson,  many  years  ago  in  the  Kentucky  and  Indiana 
Bridge  case,  described  these  commissions  as  the  referee  of  each  and 
every  Circuit  Court  of  the  United  States.^     And  it  has  been  held  that 

1  Buttfield  vs.  Stranahan,  192  U.S.  470. 

*  Political  Science  Quarterly,  December,  1906,  Bowman,  p.  615. 

3  Copcutt  vs.  Board  of  Health  of  City  of  Yonkers,  140  N.Y.  i.     See  also  p.  12. 

^  Wyman,  Administrative  Law,  Sects.  112-136;  Miller  vs.  Raum,  135  U.S.  200;  Oil 
Company  vs.  Hitchcock  190  U.S.  316. 

5  Wyman,  Administrative  Law,  Sect.  119. 

« Ibid.  Sect.  121,  note ;  Salem  vs.  Eastern  R'y  Co.,  98  Mass.  431,  443  ;  Nelson  vs.  State 
Board  of  Health,  186  Mass.  330,  7,^t,. 

'  Harvard  Law  Review,  Vol.  XX,  p.  121 ;  Wj'man,  Administrative  Law,  Sect.  121 ;  in  re 
Kollock,  165  U.S.  526;   Wyman,  Administrative  Law,  Sect.  133,  note  103  with  Cases. 

^Harvard  Law  Review,  Vol.  XX,  pp.  123,  124. 


COMMERCE  AND   INDUSTRY  565 

■ 
one  of  them  may  institute  proceedings  in  the  courts  and  become 
prosecutor  and  judge  in  the  same  case. 

Congress  voted,  in  1898,  the  payment  over  to  the  President  of 
$50,000,000,  and  under  the  power  of  administrative  law  he  expended 
it  in  his  own  discretion  without  any  check  whatever.  Under  this 
power  of  administration  in  1899,  the  Secretary  of  War  sent  troops  into 
the  state  of  Idaho,  without  even  the  petition  of  the  state  authorities ; 
martial  law  was  declared  by  the  War  Department,  the  writ  of  habeas 
corpus  was  suspended,  not  by  the  state  authorities  but  by  the  general 
in  command  of  the  army,  and  wdthout  any  warrant  whatever  he 
arrested  hundreds  of  men  and  carried  on  government  by  his  own  will. 
Mr.  Root,  at  a  New  York  University  Law  School  Banquet,  described 
administrative  law  under  his  direction,  as  Secretary  of  War,  as  follows : 
"It  has  been  my  province  during  the  last  four  years  and  a  half  to 
deal  with  arbitrary  government.  It  has  been  necessary  for  me  not 
only  to  make  laws  and  pronounce  judgment  without  any  occasion 
for  discussion  —  except  in  as  far  as  I  would  choose  to  weigh  the  ques- 
tions involved  in  my  own  mind  —  affecting  ten  million  people.  And 
not  only  to  make  laws  and  pronounce  judgment,  but  to  execute  judg- 
ment with  overwhelming  force  and  great  swiftness."  Under  this  ad- 
ministrative law  the  Philippine  Commission  on  June  i,  1903,  by 
Section  6  of  an  act  numbered  781  of  the  Philippine  Commission, 
provided  for  the  very  same  kind  of  reconcentration  of  the  native 
population  for  which  we  drove  Weyler  and  his  Spaniards  out  of 
Cuba.^ 

Under  administrative  law  the  Secretary  of  the  Interior,  by  executive 
order  in  1904,  decreed  that  all  persons  who  had  served  in  the  army  or 
navy  of  the  United  States  and  had  reached  the  age  of  sixty- two  years, 
should  be  presumed  to  have  incurred  such  disabilities  as  to  entitle 
them  to  receive  pensions  under  the  Act  of  Congress  approved  June  27, 
1890.  It  is  under  this  power  that  the  Interstate  Commerce  Commis- 
sion is  about  to  impose  rates  of  traffic  upon  200,000  miles  of  railway 
in  the  United  States.  It  is  under  this  administrative  power  that 
Secretary  Shaw  of  the  Treasury  suspended  the  duties  upon  importa- 
tions of  coal ;  accepted,  as  believed  by  many,  w^ithout  legal  authority, 
other  securities  than  national  bonds  to  secure  the  issues  of  national 
bank  notes ;  deposited  the  surplus  of  the  Treasury  with  national  banks 
in  the  amount  of  many  millions  of  dollars,  and  used  all  the  powers  at 
his  disposal  to  protect  and  further  the  interests  of  these  national 
banks.  It  is  under  this  administrative  power  that  in  all  the  states  of 
the  Union  hundreds  of  commissions  are  taking  the  control  by  license 
and  otherwise  of  the  affairs  of  men,  many  of  which  are  not  public 
in  their  nature.  In  the  case  of  the  People  ex  rel.  Lodes  against  the 
Department  of  Health,  of  New  York  City,  Mr.  Justice  Gaynor,  of  the 

^  North  American  Revlm',  Jan.  i8,  1907;    Blount,  Philippine  Independence,  p.  145. 


566     TENDENCIES  TOWARD   FEDERAL  CONTROL  OF 

Supreme  Court  of  New  York,  speaking  of  this  condition,  says :  ^  "Those 
who  meditate  a  recourse  to  arbitrary  power  for  a  good  purpose  should 
pause  to  consider  the  consequences,  for  it  is  a  vice  which  brings  in  its 
train  all  the  vices  and  especially  the  detestable  vices  of  official  extortion 
and  blackmail.  Good  men  in  good  times  should  beware  of  setting  bad 
precedents  for  bad  men  in  bad  times.  The  sale  of  impure  milk  or 
other  food  is  bad,  but  far  worse,  and  fraught  with  far  greater  evils, 
would  be  the  growing  exercise  by  executive  officials  of  powers  not  con- 
ferred on  them  by  law.  If  they  were  suffered  to  require  licenses  for 
the  ordinary  occupations  of  life,  and  refuse  them  to  whom  they  willed, 
how  long  would  it  be  before  such  licenses  would  be  sold  for  money  or 
for  political  favor  or  partisan  fidelity?"  Commissions  of  this  kind, 
censors  of  all  kinds,  restrictive  government,  multiplication  of  penal 
laws,  all  these  methods  have  been  the  methods  of  arbitrary  govern- 
ments. There  is  not  a  step  in  the  decay  of  the  Roman  Republic  and 
of  the  Empire  which  is  not  marked  by  a  large  amount  of  just  such 
legislation  as  I  have  been  describing.  The  endless  repetition  of  legal 
commands  is  the  unerring  sign  of  impotence  and  decadence. 

It  is  important  to  appreciate  whither  this  administrative  govern- 
ment is  leading.  It  differs  materially  from  administrative  government 
in  France  and  other  European  countries.  In  all  these  countries  all 
relations  between  administrative  officers  and  the  citizens,  growdng  out 
of  the  official  duties  of  those  officers,  are  regulated  entirely  in  adminis- 
trative courts.  The  citizen  of  France  is  forbade  from  the  bringing 
of  any  action  against  any  administrative  officer  for  an  official  act  with- 
out the  consent  of  the  French  Council  of  State.  This  does  not  apply 
to  acts  committed  by  officials  not  in  the  exercise  of  their  authority,  as, 
for  instance,  where  the  act  is  a  personal  fault  or  a  malicious  use  of 
lawful  powers.  But  for  all  other  administrative  acts  of  any  name  or 
nature  the  citizen  has  no  recourse  against  the  official  committing 
the  wrongful  act  under  claim  of  authority,  except  in  an  administra- 
tive court,  where  there  is  scarcely  hope  of  redress.-  These  ad- 
ministrative courts  are  conducted  by  administrative  officials  with  rules 
of  procedure  peculiar  to  themselves,  and  with  no  provision  of  trial 
by  jury.  Will  administrative  law  bring  us  to  the  same  unfortunate 
condition? 

In  Prussia  the  only  remedy  of  the  citizen  against  an  official  for  a 
wrong,  in  the  supposed  execution  of  his  duty,  is  to  appeal  to  the 
authority  who  supervises  the  action  of  that  official,  or  to  bring  an  ac- 
tion before  the  administrative  courts  against  the  official  or  officials 
w^hose  conduct  is  challenged.^  By  reason  of  this  fact  a  considerable 
part  of  all  the  litigation  in  Continental  Europe  is  carried  on  before 

1  117  App.  Div.  865. 

2  Dicey,  The  Law  of  the  Constitution,  chap.  xii. 

'  Ashley,  Local  and  Central  Government,  pp.  302,  303. 


COMMERCE  AND   INDUSTRY  567 

administrative  courts  dependent  upon  the  head  of  the  state/  and 
therefore  Ukely  to  be  safe  guardians  of  the  rights  of  officials.  The  ad- 
ministrative courts  in  European  countries  resent  with  indignation  any 
attempt  on  the  part  of  the  regular  law  courts  to  interfere  with  their 
jurisdiction  over  administrative  officials. 

There  are  no  strictly  technical  administrative  courts  in  this  country 
or  in  England.  The  public  official  is  liable  before  our  common-law 
courts  for  all  his  torts  and  wrongs,  even  though  claiming  to  have  per- 
formed them  in  his  official  capacity.  If  a  board  of  health  wrongfully 
has  declared  the  property  of  a  citizen  to  be  a  nuisance  and  destroyed 
it,  they  are  liable  in  most  of  the  states,  at  least  for  damages,  in  case 
it  was  not  a  nuisance.  If  they  revoke  the  license  of  a  milk  dealer, 
without  a  hearing,  and  for  a  cause  not  prescribed  by  the  laws  or  their 
written  regulations,  they  are  liable,  and  an  equity  court  will  enjoin 
their  action.^  It  may  be  true  that  in  some  cases  the  official  can  pro- 
tect himself  by  a  process  which  is  regular  upon  its  face,  but  in  such  a 
case  his  superior  who  issues  the  process,  if  void,  is  liable. 

These  commissioners  will  come,  by  and  by,  to  believe  that  extraor- 
dinary powers  belong  to  them ;  that  they  can  prohibit  a  legitimate 
business  by  refusing  to  license  it,  entirely  overlooking  the  fact  that 
they  are  given  the  power  to  regulate  business  and  not  to  prohibit  it. 
The  President,  a  few  days  ago,  took  away  the  license  of  a  Mississippi 
steamboat  pilot.  It  will  not  be  many  years,  if  existing  conditions 
prevail,  before  the  national  government,  through  commissions,  will  be 
licensing  every  locomotive  engineer  and  conductor  engaged  in  inter- 
state commerce,  and  will  be  licensing  every  state  corporation  doing  an 
interstate  business.  These  licenses  will  be  revocable  at  the  will  of 
the  President  or  the  head  of  the  Department  of  Commerce,  and  hun- 
dreds of  thousands,  if  not  millions,  of  men,  and  all  of  the  corporate 
interests  of  the  country,  will  be  at  the  mercy  of  the  national  govern- 
ment. So  long  as  these  commissions  are  allowed  to  exercise  judicial 
and  legislative  powers,  without  the  right  of  review  on  the  part  of  the 
regular  courts,  the  citizen's  rights  are  in  danger.  There  is  to-day  no 
menace  to  his  rights  so  great  as  administrative  decisions.  Our 
English  ancestors  three  centuries  ago  escaped  from  the  adminis- 
trative courts  of  England.  Let  us  beware  of  the  danger  of  returning 
in  our  day  to  that  kind  of  arbitrary  government. 

1  Lowell,  Governments  and  Parties  in  Cont.  Europe,  Vol.  II,  pp.  83,  195. 
'  People  ex  rcl.  Lodes  vs.  Department  of  Health  of  the  State  of  New  York,  117  App.  Div. 
856.  ■ 


568  EXCERPTS  FROM  TESTIMONY  BEFORE 

viii 

EXCERPTS    FROM   TESTIMONY   GIVEN   AT   THE 
HEARINGS  BEFORE  THE  COMMITTEE  ON  IN- 
TERSTATE    COMMERCE     OF     THE     UNITED 
STATES     SENATE,     INVESTIGATING     THE 
DESIRABILITY      OF      CHANGING      THE 
LAWS  REGULATING  AND  CONTROL- 
LING   CORPORATIONS,    PERSONS, 
AND      FIRMS     ENGAGED     IN 
INTERSTATE  COMMERCE.^ 

A  LETTER  FROM  THE  COMMISSIONER  OF  CORPORATIONS, 
MR.   HERBERT  KNOX   SMITH  ^ 

Hon.  Francis  G.  Newlands 

United  States  Senate,  Waslaington 

Dear  Senator :  Your  letter  of  the  2d  instant  was  received,  raising 
certain  questions  on  the  bill  for  an  interstate  trade  commission 
(S.  2941)  introduced  by  you.  .  .  . 

Taking  up  your  questions  in  order : 

(i)  "Shall  an  interstate  trade  commission  be  organized?" 

If  the  work  is  to  be  simply  that  of  investigation  and  publicity  my 
experience  would  indicate  that  an  organization  under  a  single  head 
would  be  decidedly  more  efficient.  For  purely  executive  or  adminis- 
trative action  such  form  of  organization  is  preferable.  If,  however, 
judicial  or  semijudicial  powers  are  to  be  exercised  the  commission 
form  has  important  advantages ;  it  is  better  adapted  for  judicial  de- 
cision, its  judicial  rulings  would  probably  carry  more  weight,  and,  in 
any  event,  it  tends  to  secure  stability,  continuity  of  policy,  and  greater 
independence  of  action. 

(2)  "Shall  the  Bureau  of  Corporations  be  merged  in  the  commis- 
sion?" 

^NOTE.  All  references  in  this  Section  are  to  the  Report  of  Hearings  Before  the  Com- 
mittee of  Interstate  Commerce,  United  States  Senate.  Sixty-Second  Congress,  1911-12. 
Pursuant  to  Senate  Resolution  98. 

*  Pp.  20  ff. 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    569 

If  the  interstate  trade  commission  is  to  exercise  substantially  the 
powers  now  used  by  the  Bureau  of  Corporations  it  seems  almost 
necessary  that  the  bureau  should  be  merged  in  that  commission,  as 
the  bureau  would  have  little  reason  for  further  separate  existence. 
There  is  also,  however,  the  very  important  consideration  that  the 
bureau  is  very  necessary  to  the  commission  ;  the  bureau  is  the  one  unit 
in  the  Government  service  which  can  immediately  supply  the  experi- 
ence, trained  force,  knowledge,  and  traditions  which  the  commission 
must  have  for  its  work. 

(3)  "Shall  the  test  of  the  applicability  of  the  acts  to  corporations 
engaged  in  interstate  trade  be  the  annual  gross  receipts,  or  the  charac- 
ter of  the  business  in  which  the  corporations  are  engaged  —  namely,  the 
production  of  great  staple  articles?" 

The  question  here  is  a  debatable  one,  but  experience  with  corporate 
business  leads  me  to  doubt  the  feasibility  of  a  classification  based  on 
kinds  of  business  or  staple  commodities.  Such  lines  of  demarcation 
are  too  vague.  For  example,  certain  companies  deal  wholly  in  the 
manufacture  of  lumber,  others  in  its  sale,  others  in  the  manufacture 
of  goods  primarily  made  out  of  other  materials  but  having  a  certain 
proportion  of  lumber.  Similarly  with  the  steel  industry  and  many 
others.  It  would  be  almost  impossible  to  draw  the  line  in  many 
cases  so  as  to  say  whether  a  corporation  was  engaged  in  a  given  in- 
dustry or  not.  Many  great  wholesale  houses  sell  a  large  amount  of 
hardware.  Would  they  be  included,  for  example,  as  engaged  in  the 
steel  industry? 

(4)  "Shall  the  power  of  the  commission  be  confined  to  investigation 
and  inquest,  requirement  of  statements  and  publicity,  and  recom- 
mendation to  the  President  and  to  Congress?" 

"If  not,  shall  the  additional  requirement  of  registration  be  made 
with  the  accompanying  power  of  denying  or  canceling  registration  for 
certain  prescribed  offenses  or  for  violation  of  the  regulations  of  the 
commission ;  and  shall  the  punishment  of  a  recalcitrant  corporation 
be  confined  simply  to  a  cancellation  of  registration?" 

Investigation,  publicity,  and  recommendation  should  be  in  any 
event  parts  of  the  system.  Personally,  I  favor  strongly  registration 
of  corporations  with  power  of  cancellation.  This  gives  a  very  practical 
means  of  control,  which  at-the  same  time  has  the  great  advantage  that 
it  does  not  actually  attempt  the  positive  regulation  of  business.  It 
allows  credit  for  proper  business  conduct  and  imposes  discredit  for  the 
reverse,  but  assumes  no  power  of  direction  and  simply  leaves  the  public 
to  apply  corrective  pressure  through  public  opinion  and  the  investment 
of  the  public's  money. 

Answering  also  the  last  part  of  the  question,  it  is  probably  better 
for  the  present  to  provide  cancellation  of  registration  as  the  only 
penalty  for  improper  business  conduct.     I  feel  entirely  satisfied  that 


570  EXCERPTS    FROM   TESTIMONY   BEFORE 

such  United  States  registration  would  shortly  become  a  valuable  busi- 
ness and  financial  privilege  for  any  large  corporation.  The  standing 
of  the  company  with  that  public  opinion  that  underlies  legislative  ac- 
tion and  the  financial  status  of  its  securities  with  the  investing  public 
would  be  affected  in  a  very  practical  way  by  the  possession  or  can- 
cellation of  such  registry.  The  approval  now  granted  to  corporate 
transactions  through  existing  State  public- service  commissions  has 
already  a  very  definite  market  effect  on  the  price  of  securities  and  on 
the  attitude  of  public  opinion. 

(5)  "The  preciseness  with  which  the  grounds  for  denial  or  cancella- 
tion should  be  stated  in  the  law,  and  whether  the  commission  shall  have 
the  power  to  make  regulations,  lack  of  compliance  with  which  will 
result  either  in  a  denial  or  cancellation?" 

The  grounds  of  cancellation  should  be  broadly  stated,  leaving  the 
commission  to  apply  in  specific  cases  the  general  rules  prescribed  by 
Congress.  If  power  of  making  regulations  be  conferred  on  the  com- 
mission, it  should  be  simply  for  such  regulations  as  will  carry  out  the 
terms  of  the  act  and  make  effective  the  rules  laid  down  therein. 

(6)  "As  the  power  to  regulate  interstate  commerce  is  a  legislative 
power,  it  has  been  held  that  the  law  turning  over  the  administration 
of  such  power  to  a  commission  or  board  shall  prescribe  the  rules  or 
standards  under  which  the  power  is  to  be  exercised.  Would  this 
apply  to  a  mere  registration  in  which  no  substantial  property  right 
is  involved?" 

The  question  of  whether  the  delegation  of  a  power  is  constitutional 
depends  wholly  on  the  nature  of  the  power.  Legislative  power, 
strictly  speaking,  cannot  be  delegated,  but  executive  power  can,  of 
course,  be  conferred  by  legislation,  and  there  can  also  be  given  quite 
broad  power  of  executive  administration  in  ascertaining  facts  and 
applying  to  them  the  rule  established  by  legislation.  It  seems  prob- 
able that  the  powers  granted  in  this  bill  come  under  the  latter  head  and 
are  constitutional. 

An  excellent  case  on  the  subject  is  Union  Bridge  Co.  vs.  United 
States  (204  U.S.  364),  where  the  earlier  cases  are  reviewed  in  detail. 
The  case  itself  involved  the  question  of  whether  an  act  of  Congress 
granting  to  the  Secretary  of  War  power  to  order  the  removal  of  the 
bridge  over  a  navigable  stream  "whenever  the  Secretary  of  War  shall 
have  reason  to  believe  that  any  .  .  .  bridge  .  .  .  over  any  of  the 
navigable  waters  ...  is  an  unreasonable  obstruction  to  the  free 
navigation  of  such  waters  on  account  of  insufficient  height,  width  of 
span,  or  otherwise,"  was  a  delegation  of  legislative  power. 

The  court  held  that  this  was  not  an  objectionable  delegation  of 
power,  and  quoted,  with  approval  from  Lock's  appeal  (72  Pa.  St.  291), 
as  follows : 

"The  legislature  cannot  delegate  its  power  to  make  a  law,  but  it 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    571 

can  make  a  law  to  delegate  a  power  to  determine  some  fact  or  state  of 
things  upon  which  the  law  makes,  or  intends  to  make,  its  own  action 
depend." 

See  also  other  cases  cited  in  this  decision. 

An  excellent  legislative  precedent  is  in  the  steamboat-inspection  law, 
where,  by  section  4405,  Revised  Statutes,  a  board  is  given  power  to 
"establish  all  necessary  regulations  required  to  carry  out  in  the  most 
effective  manner  the  provisions  of  this  title."  These  regulations  now 
cover  over  100  pages. 

In  the  same  law,  also,  the  inspectors  are  given  broad  power  over  the 
licenses  of  steamboat  officers,  as  follows:  "But  such  hcense  shall  be 
suspended  or  revoked  upon  satisfactory  proof  of  bad  conduct  .  .  .," 
a  power  obviously  closely  analogous  to  the  power  of  cancellation  pro- 
vided in  your  bill. 

It  should  be  noted  also  that  the  only  power  delegated  is  the  mere 
revocation  of  registration.  Registration  is  not  a  property  righ*^.  It 
is  simply  a  privilege  granted  through  the  commission  and  revocable 
by  it. 

Thus,  as  stated  in  paragraph  5  above,  rules  of  action  and  grounds  for 
cancellation  of  registration  should  be  set  forth  in  the  bill  itself,  with 
sufficient  definition  to  make  clear  the  intention  of  Congress  as  to  the 
class  of  acts  to  be  covered  thereby.  For  example,  the  word  "over- 
capitalization" is  perhaps  sufficiently  definite  in  itself,  while  "unfair  or 
oppressive  methods  of  competition"  would  perhaps  be  too  indefinite. 

(7)  "In  case  the  power  to  fix  prices  should  be  included,"  etc. 

I  would  prefer  not  to  discuss  the  form  of  such  power,  as  I  personally 
believe  it  unwise  to  confer  any  such  power  on  the  commission,  and  do 
not  consider  myself  competent  to  treat  the  subject  properly. 

In  considering  any  such  treatment  of  our  commercial  problem  as  is 
attempted  in  this  bill,  it  seems  to  me,  at  least,  that  the  Government 
should  not,  at  present,  commit  itself,  by  way  of  general  policy,  either 
to  the  theory  of  "unlimited  competition"  or  of  "unlimited  combina- 
tion." We  are  not,  I  feel,  sufficiently  advanced  to  justify  us  in  taking" 
a  definite  position  in  favor  of  either  one  of  these  opposing  ideas.  Any 
system  we  adopt  now  should  be  so  framed  as  to  be  alike  available  for 
either  development.  To  give  the  power  to  fix  prices  would  tend  to 
commit  us  to  a  policy  of  industrial  combination. 

(8)  "Shall  the  provision  regarding  registration  b-'  simply  p.r- 
suasive  or  compulsory ;  and  if  compulsory  as  to  the  large  corpora- 
tions, shall  permissive  registration  be  granted  to  the  smaller  corpora- 
tions?" 

I  believe  that  the  system  would  be  entirely  workable,  if  the  publicity, 
etc.,  were  simply  permissive,  and  that  some  complications  would  thus 
be  avoided.  But  a  compulsory  system  for  large  corporations  should 
also  bring  much  the  same  results,  especially  if  coupled  with  permissive 


572  EXCERPTS    FROM   TESTIMONY    BEFORE 

registration  for  smaller  concerns.     The  permissive  feature  for  smaller 
companies  seems  decidedly  desirable. 

(9)  "Shall  the  commission,  in  case  of  revocation  of  registration, 
have  power  to  order  that  the  offending  corporation  shall  not  engage  in 
interstate  commerce?" 

This  power  is  a  peculiarly  drastic  one,  and  would  require  rather 
elaborate  machinery  for  its  enforcement.  I  doubt  both  the  wisdom 
and  the  necessity  here. 

I  take  the  liberty  of  adding  some  general  considerations,  which  may 
be  relevant  to  the  discussion  of  such  a  system  as  is  proposed  by  your 
bill.  These  views  are  based  on  an  experience  of  eight  years  in  the 
Bureau  of  Corporations. 

(10)  The  one  imperative  change  now  required  in  our  policy  toward 
the  "corporate  problem,"  is  a  change  from  our  present  system  of 
treating  that  problem  through  occasional  prosecution,  to  a  system 
which  will  treat  it  with  continuous  administrative  action.  We  should 
advance  from  a  negative  policy  to  a  positive  constructive  policy ; 
from  mere  occasional  prohibition  to  permanent  regulation  and  pre- 
vention. 

(11)  One  of  the  primary  objects  of  the  commission  is  the  providing 
of  proper  publicity.  This  should  not  be  combined  with  the  adminis- 
tration of  the  Sherman  law.  It  is  probably  true  that  efhcient  publicity 
is  inconsistent  with  prosecution,  at  least  as  administered  by  the  same 
ofhce.  The  Bureau  of  Corporations,  the  present  agent  of  corporate 
publicity,  secures  now  at  least  nine-tenths  of  its  information  by  volun- 
tary cooperation.  The  interstate  trade  commission  would  continue 
this  work,  but  should  the  function  of  prosecution  under  the  Sherman 
law  be  combined  with  publicity,  it  is  obvious  that  the  present  vol- 
untary cooperation  of  corporations,  the  main  source  of  information, 
will  very  largely  be  destroyed. 

There  are  of  course  exceptions  to  this  general  principle.  At  times 
it  would  be  necessary  for  the  information  obtained  by  the  commission 
and  indicating  a  clear  and  flagrant  violation  of  law  to  be  turned  over 
to  the  Department  of  Justice.  The  Bureau  of  Corporations  has  in 
this  manner  given  much  assistance  to  the  Department  of  Justice. 
The  numerous  prosecutions  of  the  Standard  Oil  Co.  since  1906  for 
railway  rate  discriminations  were  all  based  on  the  report  of  that  bureau, 
and  the  agents  of  the  bureau  furnished  much  of  the  e\ddence  and  as- 
sisted largely  in  the  preparation  of  the  cases. 

Similarly,  in  the  recent  prosecution  of  that  company  under  the 
Sherman  law,  the  case  was  instituted  as  a  result  of  the  investigations 
of  the  bureau,  was  largely  prepared  by  its  agents,  and,  I  venture  to 
say,  would  not  have  been  successfully  presented  without  their  aid. 
Some  of  the  ablest  men  in  the  bureau  gave  over  a  year  of  their  time 
to  this  case. 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    573 

But  in  general  such  connection  with  prosecution  should  be  wholly 
incidental  and  secondary,  and  the  publicity  work  of  the  commission 
should  be  directed  primarily  at  furnishing  reliable  economic  and  finan- 
cial information  for  the  general  public  and  not  at  securing  evidence 
for  prosecution. 

(12)  One  of  the  most  important  features  of  such  an  administrative 
system  of  corporate  regulation  is  its  provision,  as  above  referred  to, 
for  broad  corporate  publicity.  The  effects  of  such  publicity  have 
been  well  shown  by  the  past  work  of  the  Bureau  of  Corporations,  as 
set  forth  in  the  annual  report  of  the  Commissioner  of  Corporations 
for  1910. 

The  report  of  the  bureau  on  the  transportation  of  petroleum,  pub- 
lished in  May,  1906,  effected  a  sweeping  decrease  in  the  granting  of 
railway  rebates  throughout  the  country.  Practically  every  railroad 
involved  in  the  railway  discriminations  described  in  this  report  can- 
celed the  objectionable  rates  within  six  months  after  the  issuance  of 
the  report. 

The  report  of  the  bureau  on  cotton  exchanges  resulted  within  a  few 
months  in  a  marked  improvement  in  the  regulations  of  the  New  Or- 
leans Cotton  Exchange,  and  while  the  New  York  Cotton  Exchange 
has  not  yet  made  any  changes  in  its  system,  that  exchange,  on  March 
23,  191 1,  voted  "that  it  is  the  sense  of  this  meeting  that  since  .  .  .  the 
Department  of  Commerce  and  Labor  has  made  an  exhaustive  in- 
vestigation of  the  business  methods  of  the  cotton  exchanges  and  has 
criticised  the  methods  and  by-laws  of  the  New  York  Cotton  Exchange 
...  it  will  be  good  judgment  on  the  part  of  this  exchange  to,  .  .  .  so 
far  as  possible,  adopt  the  suggestions  made  by  the  Government." 

In  the  tobacco  industry  the  independent  manufacturers  have  in 
many  instances  stated  that  the  work  of  the  bureau  has  caused  the 
cessation  of  various  objectionable  methods  of  competition. 

In  the  problem  of  waterways,  the  reports  of  the  bureau,  three  in 
number,  have  very  widely  influenced  public  opinion  by  showing  the 
real  questions  to  be  solved  and  the  real  advantages  to  be  attained  in 
waterway  transportation. 

A  Federal  administrative  system  of  publicity  and  registration  should 
develop  both  strength  and  elasticity.  The  administration  of  such  a 
system  should  result  in  a  definite  and  broadening  policy,  based  on 
exact  information,  establishing  definite  standards  of  business  action, 
of  public  economics,  and  of  Government  regulation,  in  themselves 
highly  effective,  and  valuable  also  as  the  raw  material  for  further 
statutory  enactment. 

We  may  fairly  hope  to  get  from  it  a  gradual  rise  in  the  standard  of 
business  conduct,  closer  relationship  between  large  business  and  public 
authorities,  marked  improvement  in  corporate  accounting  and  in 
the  standing  of  our  industrial  securities,  and  the  climinatit)n  of  unfair 


574  EXCERPTS    FROM   TESTIMONY   BEFORE 

practice  and  business  privilege.     All  of  this  without  any  disturbance 
of  properly  conducted  business. 

The  time  seems  ripe  for  such  action.  It  has  been  obvious  since  the 
Supreme  Court  decisions  on  the  Standard  Oil  and  Tobacco  Co.  cases 
that  the  public  is  ready  and  anxious  for  an  advance  to  some  such  ad- 
ministrative system  of  regulation  by  the  Federal  Government.  It 
seems  to  be  true  that  corporate  managers  concede  more  and  more 
the  necessity  for  such  regulation  and  publicity,  recognizing  both  its 
public  necessity  and  its  advantage  to  fair  business. 
Very  sincerely,  yours, 

Herbeet  Knox  Smith,  Commissioner. 


FROM  THE  TESTIMONY  OF  TAYLOR  VINSON,  ATTORNEY 

AT  LAW,   AND   ALSO   ENGAGED   IN  THE   COAL 

BUSINESS,   HUNTINGTON,   W.  VA.i 


The  trouble  with  the  business  man  to-day  is  that  he  doesn't  know, 
and  his  lawyers  cannot  tell  him,  whether  he  is  violating  the  law  or 
whether  he  doing  a  legitimate  and  sane  thing. 

Now,  that  is  the  difl&culty  with  the  business  man.  A  man  does  not 
know  how  to  do  it.  They  do  not  want  to  \nolate  the  law,  and  they 
will  not  if  they  can  help  it,  but  there  is  the  condition.  Now,  I  know 
it  is  claimed  that  the  atmosphere  has  been  cleared  very  largely  by 
the  recent  decisions  of  the  Supreme  Court  in  the  oil  and  the  tobacco 
cases.  The  construction  that  the  court  put  upon  that  statute  by 
putting  the  word  "reasonable"  in  there,  it  seems  to  me,  was  the  only 
construction  that  the  court  could  have  given  it,  because  we  cannot 
assume  that  this  Congress  would  propose  a  law  that  would  require 
men  to  do  an  insane  thing  or  do  an  unreasonable  thing,  and  to  keep 
from  being  destroyed,  or  rather  the  business  being  put  into  bankruptcy, 
it  would  be  the  sane  thing  or  the  reasonable  thing  for  any  business  man 
to  go  to  his  neighbor  and  say,  "I  cannot  live,  this  business  is  ruining 
me,  and  I  want  you  to  take  it  over  at  a  fair  price,"  and  the  law  would 
say  this  whether  you  are  a  trust  and  using  oppressive  powers  or  not. 

In  my  judgment  the  court  is  wholly  inadequate  to  do  those  things. 
They  cannot  administer  economic  laws.  Their  laws  are  constitutional 
laws,  and  laws,  of  course,  that  are  passed  by  Congress.  Take,  for 
instance,  those  two  cases  which  the  court  has  just  decided.  If  we 
look  at  the  result  in  those  cases  we  see  the  complication  that  must 
necessarily  arise  in  any  and  every  case  that  the  court  passes  upon. 

'  Pp-  34-35- 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    575 

For  instance,  the  court  in  those  cases  has  said  that  the  combination  — 
take  the  Standard  Oil  case  as  an  illustration,  composed  of  thirty- 
four  small  companies  —  must  be  disintegrated,  and  each  one  of  those 
small  companies  must  go  on  and  compete  with  each  other.  The 
stock  held  by  the  Standard  was  returned  to  the  treasury  of  the  small 
companies  and  reissued  to  the  stockholders  of  the  Standard.  The 
same  controlling  stockholders  in  the  Standard  have  a  controlling 
interest  in  each  one  of  the  small  companies.  So  that  the  thirty- 
four  companies  have  control  exactly  —  have  stock  ownership  with 
the  small  interests  that  formerly  controlled  the  Standard.  Now, 
then,  the  decree  is,  and  the  injunction  is,  that  each  one  of  those 
thirty-four  companies  must  go  into  real  and  actual  competition  one 
with  the  other.  Gentlemen,  in  my  judgment  that  is  humanly  im- 
possible —  that  two  or  three  gentlemen  may  get  together  and  own 
two  or  three  companies  engaged  in  the  same  business,  and  they  can 
force  and  compel,  and  will  force  and  compel,  those  companies  all  to 
engage  in  real  and  actual  competition  one  with  the  other  in  the 
market  it  seems  to  me  is  asking  a  little  bit  too  much  of  human 
nature. 

Now,  if  that  is  not  done  —  and  I  do  not  see  how  it  is  possible  that 
it  may  be  done,  or  could  be  done  —  what  is  going  to  be  the  result? 
The  result  is  that  every  stockholder,  that  every  one  who  has  any  in- 
terest in  these  companies,  will  be  cited  a  hundred  times  a  month  on 
contempt  proceedings,  and  in  my  judgment  litigation  in  those  cases 
has  only  really  begun  after  the  court  has  approved  the  reorganization 
plans.  I  hope  I  may  be  mistaken  about  that,  but  I  do  not  see  any 
other  way  out  of  it. 

Now,  take  the  coal  industry.  It  cannot  live  two  years  if  we  form 
a  combination.  We  do  not  want  to  form  combinations  of  any  char- 
acter and  then  go  to  the  district  attorney  and  tell  him  to  indict  us 
for  a  criminal  offense  in  order  to  find  out  whether  we  are  doing  a  legiti- 
mate business  or  an  illegitimate  business. 

Now,  that  is  the  condition  we  are  in.  If  the  Government  proceeds 
against  us  by  a  suit  of  dissolution,  then  it  would  take  two  or  three 
years,  at  the  very  best  that  can  be  done,  to  finally  come  to  a  conclusion 
as  to  whether  or  not  we  are  legitimate  or  whether  or  not  we  are  violat- 
ing the  law.  Now,  it  would  be  so  much  easier,  so  much  simpler,  and 
so  much  better,  gentlemen  of  this  committee,  if  in  the  first  instance 
you  had  four  or  five  men  who  are  skilled  in  the  mining  business,  from 
the  digging  of  the  coal  out  of  the  ground  to  selling  it  in  the  market, 
to  pass  upon  the  legality  of  these  contracts,  so  that  if  your  contract 
or  your  combination  which  you  propose  is  an  illegal  one  you  must  not 
establish  it,  you  must  modify  it ;  or,  where  it  is  legal,  then  we  put  our 
business  upon  a  legal  basis,  and  we  can  go  on  and  not  only  do  business 
but  our  small  men  themselves  will  be  in  a  position  where  they  can 


576  EXCERPTS    FROM    TESTIMONY    BEFORE 

protect  their  property  and  their  investment  and  keep  on  doing  busi- 
ness.    Otherwise  we  must  go  out  of  business  ;  we  must  stop. 

Now,  we  ask  this  Congress  to  give  us  that  relief.  We  feel  that  if 
this  commission  is  created  it  will  accomplish  great  purposes,  in  help- 
ing us  out  of  the  difficulty  we  have  gotten  into.  By  obeying  the  law 
we  are  running  into  ruin,  and  we  want  the  law  changed  so  as  to  prevent 
that  ruin.  Now,  the  commission  can  do  it.  It  can  do  it  justly; 
it  can  act  quickly  with  all  the  facts  before  it,  and  instantly ;  not  only 
in  these  trade  agreements  which  are  so  necessary  under  existing  eco- 
nomic conditions,  but  they  can  administer  this  miner's  relief  fund  and 
give  those  men  the  relief  to  which  they  are  entitled  and  make  the 
charge  upon  the  industry,  and  they  are  entitled  to  it ;  otherwise  we 
will  have  to  stop  the  operation  of  the  employers'  liability  laws  over 
the  country ;  that  would  be  just  as  disastrous,  if  not  more  so  —  it 
certainly  will  be  more  so  so  far  as  explosions  and  accidents  are  con- 
cerned to  the  smaller  men  —  than  even  the  operation  of  the  Sherman 
Antitrust  Law. 

*  %  %  :tc  :)(  :):  4: 


LETTER  OF  HENRY  R.  TOWNE,  ESQ.,  OF  THE  YALE  AND 

TOWNE  MANUFACTURING  COMPANY,  INTRODUCED 

AS  TESTIMONY  BY  HON.  SETH  LOW ' 

THE   SHERMAN  ACT    IN  ITS   RELATIONS   TO    TR.\DE   ORGANIZA- 
TIONS—SUGGESTIONS  CONCERNING  A   SIMPLE  AMENDMENT 

The  decisions  of  the  Federal  courts  thus  far  rendered  in  cases  arising 
under  the  Sherman  Antitrust  Act  of  i8go,  and  involving  either  at- 
tempted monopoly  or  attempted  restraint  of  interstate  commerce, 
have  been  confined  chiefly,  if  not  wholly,  to  two  classes  of  cases,  viz. : 
(i)  Those  in  which  control  was  sought  through  a  holding  company, 
by  which  the  operations  of  a  number  of  corporations,  previously  in- 
dependent and  competitive,  were  brought  under  a  single  management ; 
and  (2)  those  in  which  control  was  sought  by  the  merging,  into  a  single 
corporation,  of  the  property  and  ownership  of  numerous  smaller  cor- 
porations previously  independent  and  competitive. 

While  these  two  classes  undoubtedly  represent  the  largest  and  most 
prominent  cases  to  which  the  Sherman  Act  was  intended  to  apply, 
there  remains  a  third  class,  which,  if  less  spectacular  and  prominent 
as  to  its  units,  includes  a  vastly  larger  number  of  cases  than  either  of 
the  other  two  classes,  and  which,  in  aggregate  importance  in  the  in- 

1  Pp.  525-527. 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    577 

dustry  and  commerce  of  the  country,  probably  exceeds  either  if  not 
both  of  the  others.  This  class  embraces  the  vast  number  of  small 
industrial  and  commercial  units  which  form  a  constituent  part  of  the 
many  lesser  industries,  each  of  which  latter  is  important  if  not  essen- 
tial to  the  welfare  and  convenience  of  the  people,  or  to  the  efficiency 
of  other  related  industries.  Probably  the  employees  of  this  group  in- 
clude a  large  majority  of  our  citizens  of  both  sexes  who  are  engaged  in 
organized  industry.  Among  the  units  of  this  great  class  the  practice 
has  prevailed  for  at  least  a  generation,  and  probably  much  longer,  of 
forming  cooperative  trade  associations  for  mutual  protection  and  bene- 
fit. Among  the  various  purposes  sought  have  been  the  regulation  of 
prices  and  the  pooling  of  profits,  both  of  which  are  now  held  by  many 
authorities  to  be  forbidden  by  the  Sherman  Act,  although,  so  far  as  I 
know,  no  decisions  have  been  rendered  covering  precisely  the  class 
of  cases  to  which  I  refer.  Where  an  association  or  pool  accomplishes 
or  attempts  a  substantial  monopoly  of  an  industry,  unquestionably 
the  Sherman  Act  applies,  and  should  apply.  A  serious  doubt  arises, 
however,  whether  the  Sherman  Act  does  or  should  apply  in  cases  where 
most  or  all  of  the  following  conditions  prevail,  viz. : 

(i)  The  group  includes  only  a  fraction  of  the  industry,  a  substantial 
number  of  units  remaining  outside. 

(2)  The  group  maintains  uniformity  of  prices  among  its  members 
on  a  level  which  yields  only  reasonable  profits,  which  enables  the 
smaller  and  weaker  members  of  the  group  to  continue  in  existence, 
and  which,  instead  of  suppressing,  tends  to  encourage  competition 
by  maintaining  conditions  which  invite  new  competitors  to  enter  the 
field,  and  which  imposes  no  penalties  upon  them,  but  rather  confers 
benefits. 

(3)  The  group  attends  strictly  to  its  own  affairs,  without  attempting 
to  interfere  with  or  molest  outside  competitors,  in  some  cases  even 
extending  to  the  latter  an  invitation  to  join  the  group. 

(4)  The  group  imposes  no  restriction  upon  competition  among  its 
members  or  with  outsiders,  except  as  to  the  maintenance  of  uniform 
prices,  each  member  having  the  same  incentive  and  freedom  as  before 
to  develop  its  business  as  largely  as  possible  and  in  whatever  ways  it 
may  find  expedient.  In  other  words,  there  is  no  restriction  of  com- 
petition except  by  cutting  prices. 

(5)  In  some  cases  the  plan  provides  not  only  for  the  fixing  of  prices 
by  concurrent  action,  but  also  for  the  pooling  of  profits.  Even  so, 
the  members  collectively  have  the  same  incentive  and  freedom  as 
before  to  prosecute  and  develop  the  business,  the  sole  qualification 
being  that  one  who  does  so  unfairly  and  at  the  expense  of  his  fellow 
members  forfeits  to  the  latter  some  share  of  his  excess  profits.  In  this 
case,  as  before,  however,  no  limitation  of  or  interference  with  outside 
competitors  results ;    on  the  contrary,  such  competition  is  protected 


578  EXCERPTS    FROM    TESTIMONY    BEFORE 

and  encouraged  by  the  maintenance  of  profitable  prices  by  the  group. 
Pooling  merely  regulates  internal  competition ;  it  does  not  affect 
external  competition. 

(6)  In  addition  to  regulating  prices,  or  the  distribution  of  profits, 
or  both,  such  industrial  groups  usually  perform  many  other  func- 
tions useful  to  their  members  and  often  beneficial  to  the  community, 
as  for  example,  the  ascertainment  of  credits,  the  collection  of  debts, 
the  prosecution  of  dishonest  customers,  and  the  encouragement  of 
regularity  of  trade  practices,  thereby  preventing  unfair  discrimination 
between  customers  of  different  kinds  or  in  different  locahties. 

Many  thousands  of  associations  of  the  kind  thus  indicated  have 
heretofore  existed  throughout  the  country  and  in  nearly  every  branch 
of  organized  industry.  Many  of  these  were  in  existence  long  before 
the  enactment  of  the  Sherman  law  of  1890  and  have  been  in  continuous 
operation  until  now.  Many,  if  not  all,  of  their  members,  aroused  by 
the  recent  decisions  of  the  courts,  have  sought  legal  counsel  of  late 
as  to  whether  these  operations  do  or  do  not  come  within  the  scope  of 
the  Sherman  law.  The  advice  so  obtained  has  differed  widely. 
Some  have  been  advised  that  the  law  applies,  some  that  it  does  not, 
and  all  are  at  sea.  The  net  result  has  been  to  produce  profound 
disturbance  and  unrest,  which  is  felt  even  more  than  is  expressed, 
and  this  in  turn  is  operating  adversely  upon  business  of  all  kinds, 
especially  in  the  halting  of  plans  for  further  development  and  for  new 
undertakings. 

Speaking  from  long  and  wide  experience  and  as  a  student  of  this 
subject,  I  express  unqualifiedly  the  conviction  that  in  the  great  major- 
ity of  cases  these  friendly  associations  of  competitors  have  not  only 
promoted  the  interests  of  their  members  in  many  and  important  ways, 
but  on  the  whole  have  promoted  also  the  welfare  of  distributors,  and 
consumers.  A  striking  confirmation  of  this  view  is  the  fact  that,  in 
most  cases,  these  associations  have  been  conducted  openly,  with  full 
knowledge  of  all  concerned,  and  without  protest  or  objection  from  any 
side.  Obviously  this  would  not  have  been  the  case  had  their  opera- 
tions been  oppressive  or  injurious  or  unfair.  Thousands  of  small 
producers  have  been  enabled  by  these  associations  to  continue  in 
successful  operation  which  otherwise  would  have  been  crushed  out 
of  existence  by  the  ruinous  competition  of  their  stronger  neighbors. 
The  adequate  profits  realized  have  largely  been  devoted  to  the 
upbuilding  of  industries  which  otherwise  would  have  halted  or  lan- 
guished because  of  inadequate  means  wherewith  to  develop.  A  rail- 
road or  a  great  industrial  corporation  can  obtain  the  capital  needed 
for  growth  by  successive  issues  of  new  securities,  but  this  resource 
is  rarely  available  or  expedient  to  the  small  industrial  unit.  Almost 
invariably  the  capital  needed  for  the  growth  of  the  latter  is  obtained 
by  appropriating  part,  or  sometimes  all,  of  the  profits  of  the  business 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    579 

to  increased  and  improved  facilities,  and  it  is  to  the  interest  of  the  com- 
munity that  this  process  should  be  encouraged  and  continued.  It  is 
possible  only  when  fair  profits  are  realized  which  leave  some  surplus 
available  for  reinvestment.  Under  unregulated  competition  such 
profits  can  rarely  be  earned  by  the  smaller  and  less-favored  units, 
whereas  under  regulated  competition  they  prosper  and  grow  and 
new  competitors  are  encouraged  to  enter  the  field  as  the  industry 
expands. 

The  class  of  competitors  to  which  the  foregoing  arguments  apply, 
whether  manufacturers  or  distributors,  includes  almost  every  field 
of  production  and  a  very  wide  range  in  size  of  unit.  In  aggregate 
numbers  it  includes  by  far  the  greater  part  of  organized  industry. 
Cooperative  arrangements  of  the  kind  referred  to  affect  small  rather 
than  "big"  business,  but  the  aggregate  interests  included  in  the  former 
group  are  undoubtedly  greater  than  those  included  in  the  latter. 
Germany,  by  her  system  of  "cartels,"  not  only  permits  but  actively 
encourages  cooperative  arrangements  of  the  kind  in  question. 

The  spirit  of  the  method  under  discussion  is  embodied  in  the  phrase 
"Cooperation  is  the  life  of  trade."  It  stands  for  peace  and  pros- 
perity, versus  war  and  persecution.  Under  modern  conditions  of 
industry  and  commerce,  as  in  the  affairs  of  nations,  "War  is  hell." 

It  is  not  argued  that  competition  should  be  eliminated,  but  that  it 
needs  to  be  and  should  be  regulated ;  that  we  should  aim  to  retain  its 
beneficent  and  constructive  features  while  eliminating  those  which 
are  baneful  and  destructive.  Unbridled  competition  tends  to  defeat 
the  end  now  so  urgently  sought  by  destroying  the  weaker  units  of  an 
industry,  and  thus  creating  a  monopoly  among  the  sur\dvors.  Co- 
operative competition  tends  to  promote  the  end  in  view,  by  preserving 
the  smaller  units,  by  helping  them  to  become  stronger,  and  by  thus 
encouraging  a  true  competition  which,  because  healthy  and  conserva- 
tive, will  be  lasting. 

At  present  industry  and  commerce  are  in  doubt  as  to  the  extent  to 
which,  if  at  all,  cooperative  competition  is  permissible  under  the 
Sherman  law  as  interpreted  by  recent  decisions  of  the  courts.  This 
doubt  would  be  dispelled  by  an  amendatory  act  further  defining 
the  intent  and  scope  of  the  Sherman  law.  It  has  well  been  said  that 
the  proper  function  of  the  law  is  to  indicate  the  things  which  are  pro- 
hibited rather  than  those  which  are  permitted ;  that  every  citizen 
should  be  free  to  conduct  himself  and  his  affairs  in  whatever  way  he 
may  see  fit,  so  long  as  his  acts  do  not  comprise  things  which  are  for- 
bidden by  the  laws.  An  act  clearly  defining  the  things  which  are 
forbidden  and  unlawful  in  the  relations  of  competitors  in  the  conduct 
of  interstate  commerce  would  greatly,  perhaps  completely,  clear  the 
situation,  dispel  existing  doubts,  and  restore  most  if  not  all  our  indus- 
tries and  commerce  to  complete  prosperity. 


580  EXCERPTS   FROM   TESTIMONY   BEFORE 

STATEMENT  OF  ELBERT  H.  GARY  OF  NEW  YORK,  N.Y., 

CHAIRMAN   AND    CHIEF   EXECUTIVE  OFFICER   OF 

THE   UNITED   STATES   STEEL    CORPORATION  ^ 

Mr.  Gary,  Mr.  Chairman,  and  gentlemen  of  the  committee,  I  have 
prepared  hastily  a  very  short  statement  which  I  will  read  with  the 
permission  of  the  committee: 

I 

The  great  consolidations  which  have  been  created  during  the  last  1 5  years 
for  the  conduct  of  many  kinds  of  business  are  of  public  benefit  in  many  waj's  : 

First.  By  reason  of  their  large  resources,  their  special  study  of  foreign 
trade  conditions,  and  their  manufacture  and  sale  of  many  kinds  and  classes 
of  products,  these  great  integrated  organizations  develop  the  foreign  trade 
of  the  country  to  an  extent  impossible  for  individuals,  firms,  and  small  busi- 
ness corporations.  An  example  of  this  is  seen  in  the  enormous  export  busi- 
ness in  steel  products  created  by  the  United  States  Steel  Corporation. 
Ninety-five  per  cent  of  all  the  steel  exported  is  sold  by  the  United  States 
Steel  Corporation,  although  it  sells  not  more  than  50  per  cent  of  the  steel 
used  at  home. 

Second.  By  reason  of  their  financial  resources  and  power  to  employ  the 
ablest  men  in  management  and  scientific  research  these  great  organizations 
are  able  to  conduct  experiments  and  develop  new  methods  which  could  not 
be  done  in  the  conduct  of  small  business  operations. 

Third.  The  extent  of  their  operations  allows  them  to  effect  economies, 
reducing  the  cost  to  the  consumer;  and  also  to  conserve  the  natural  re- 
sources of  the  country.  An  example  of  these  economies  is  the  employment 
of  certain  mills  wholly  in  the  manufacture  of  particular  classes  of  goods, 
instead  of  attempting  to  make  all  classes  of  goods  at  the  same  mill,  also  the 
production  of  goods  for  certain  sections  of  the  country  in  mills  located  in 
those  sections,  thus  avoiding  useless  expense  of  transportation.  An  example 
of  the  conservation  of  natural  resources  is  the  utilization  of  by-products, 
which  usually  requires  large-scale  production  and  an  investment  prohibitive 
in  small  industries. 

Fourth.  These  great  integrated  corporations  have  done  much  more 
than  it  was  possible  for  small  business  organizations  to  do  toward  the  im- 
provement of  the  condition  of  their  workmen,  such  as  profit-sharing  plans, 
pension  funds,  voluntary  accident  relief,  endeavors  to  prevent  accidents, 
sanitation,  higher  wages,  and  many  other  efforts  to  improve  the  conditions 
of  workmen  in  which  the  great  integrated  business  organizations  are  recog- 
nized as  the  leaders. 

Fifth.  The  creation  of  these  great  corporations  drawing  their  capital 
from  the  investing  public  has  transferred  the  ownership  of  our  great  basic 
industries  from  a  comparatively  small  number  of  persons  to  great  numbers 
of  the  people.  The  United  States  Steel  Corporation  alone  probably  repre- 
sents upwards  of  150,000  persons  who  are  the  holders  of  its  stock  and  bonds. 

» Pp.  693  fi. 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE     581 

Great  numbers  of  persons  of  very  small  means  are  thus  enabled  to  share  in 
the  profits  of  enterprises  whose  conduct  requires  enormous  capital. 


II 

It  is  fair  to  assume  that  the  power  of  these  great  business  organizations 
might  be  used  to  the  detriment  of  the  public. 


Ill 

Since  great  benefits  result  from  these  consolidations,  and  yet  possibilities 
of  danger  may  arise  from  a  misuse  of  their  power,  it  would  seem  necessary 
to  find  some  plan  for  preserving  the  benefits  and  eliminating  the  dangers  by 
some  sort  of  regulation. 

IV 

The  only  regulation  adequate  in  scope  and  power  to  deal  with  these 
aggregations  of  capital  is  regulation  by  the  Federal  Government,  because 
the  subject  matter  of  the  regulation  is  largely  interstate  commerce  with 
which  the  states  may  not  interfere,  and  the  size  and  extent  of  the  organiza- 
tions involved  is  such  as  to  require  uniform  and  national  regulation. 

V 

It  is  suggested  that  the  dangers  which  are  possible  from  the  great  cor- 
porations can  be  eliminated  and  their  benefits  as  suggested  may  be  pre- 
served by  the  following  plan  for  their  regulation : 

First.  Every  corporation  engaged  in  interstate  commerce  should  be 
required  to  obtain  a  Federal  license,  which  would  be  granted  only  upon  the 
following  conditions  : 

(a)  That  the  utmost  publicity  should  be  observed  in  all  matters  specified 
by  the  Federal  authorities. 

(/))  That  there  should  be  no  overcapitalization. 

(f)  That  prices  should  be  the  same  to  all  customers  without  discrimina- 
tion between  persons  or  localities. 

{(i)  That  the  business  should  be  conducted  in  conformity  to  the  laws  of 
the  United  States  and  not  in  contravention  thereof. 

If  there  be  other  regulations  capable  of  general  application  they  could  be 
made  conditions  of  the  granting  and  continuance  of  these  licenses. 

Second.  A  corporation  commission  should  be  created,  similar  to  the 
Interstate  Commerce  Commission,  with  power  to  grant,  suspend,  and  re- 
voke these  licenses,  subject  to  a  right  of  appeal  to  the  courts.  This  com- 
mission should  be  given  the  following  powers: 

(a)  To  see  to  it  that  the  conditions  upon  which  interstate  commerce 
licenses  have  been  granted  are  strictly  observed. 

(h)  To  decide  questions  submitted  by  the  managers  of  business  organiza- 
tions Vv'ho  desire  to  observe  the  law  in  all  respects  and  to  avoid  any  question 
of  illegality  in  their  actions. 


582  EXCERPTS    FROM    TESTIMONY    BEFORE 

(c)  To  regulate  prices  so  far  as  necessary  to  prevent  monopoly  and  re- 
straint of  trade  ;  for  example,  if  prices  should  be  established  by  trade  agree- 
ments, or  if  raw  materials,  such  as  cotton  or  tobacco,  should  be  pooled,  or 
if  patents  should  be  used  to  the  public  detriment,  this  commission  should 
be  empowered  to  establish  maximum  prices  for  the  goods  thus  controlled. 

(d)  Provision  should  be  made  for  a  review  of  the  decisions  of  this  cor- 
poration commission  by  the  Commerce  Court  or  some  other  qualified  tri- 
bunal, so  that  the  refusal,  suspension,  or  revocation  of  an  interstate-com- 
merce license  could  be  finally  determined  by  the  courts. 

Conclusion 

What  is  needed  is  fair,  honest,  and  healthy  competition.  It  is  the  oppo- 
site of  restraint  of  trade.  Unrestrained  competition  in  the  end  results  in 
monopoly  and  the  restraint  of  trade. 

I  do  not  know  whether  you  would  care  to  have  me  elaborate.  I 
shall  be  very  glad  to  give  you  my  views  somewhat  more  at  length, 
and  of  course  will  be  willing  to  have  you  ask  me  anything  that  you  may 
think  of. 

I  believe  honest  men,  whether  they  are  capitalists  or  poor  men, 
whether  they  are  employers  or  employees,  whether  they  are  Repub- 
licans or  Democrats,  are  at  the  present  time  generally  looking  in 
the  same  direction,  trying  to  find  a  solution  of  the  problems  under 
consideration  which  will  protect  all  interests.  No  decent  man  is 
desirous  of  violating  the  laws  of  the  country  or  of  doing  anything  which 
is  inimical  to  the  public  interests.  I  think  people  with  connections 
such  as  myself  realize  that  all  over  the  world  at  the  present  time  there 
is  a  feeling  of  more  or  less  unrest.  A  great  many  things  have  been 
suggested  which  are  impracticable  and  undesirable,  and,  carried  to 
their  natural  and  logical  sequence,  will  result  in  a  great  deal  of  harm. 

I  am  one  of  those  who  believe  that  it  is  unwise,  if  honest ;  it  is  im- 
politic, if  decent,  to  shut  our  eyes  to  these  conditions.  It  is  the  most 
natural  thing  in  the  world  for  a  man  who  is  out  of  office  to  want  to  get 
in  office ;  for  a  man  who  has  no  property  to  desire  the  property  of  a 
man  who  has  property,  and  so  on.  It  always  has  been  a  warfare  on 
the  part  of  the  "outs"  against  the  "ins." 

Now,  those  are  conditions  that  the  business  man,  I  think,  must 
deal  with,  and  it  is  a  great  deal  better  for  him  to  assist  in  bringing  about 
a  fair  solution  than  to  oppose  what  may  be  suggested  by  others  in 
that  direction  and  thereby  permit  the  question  to  drift  until  it  is  dis- 
posed of  by  an  unthinking  and,  perhaps,  a  dishonest  man  or  set  of 
men. 

What  I  have  said  is  more  or  less  apologetic,  because  I  know  there  are 
those  who  think  my  individual  opinion,  in  view  of  my  connections,  is 
somewhat  radical  and  extreme.     I  have  often  been  accused  of  being  a 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    583 

Socialist,  or  with  having  socialistic  views.  I  believe  what  I  suggest 
is  the  way  to  prevent  the  bad  results  which  would  come,  or  might  come, 
from  socialism.,  so  called,  carried  to  what  I  believe  to  be  its  extremes. 
I  believe  the  man  —  the  business  man  or  the  statesman  —  who  is 
conservative  and  constructive,  and  who  is  sufficiently  aggressive  to 
bring  about  conditions  which  are  calculated  to  thoroughly  protect  all 
interests  and  all  sides  of  these  controversies,  with  injury  to  no  one,  is 
the  man,  or  are  the  men,  the  country  needs  at  the  present  time. 

I  recognize  the  fact  that  during  the  past  years  there  has  been  much  in 
the  management  of  great  business  affairs  which  was  wrong.  I  think 
many  of  the  business  men  in  the  past,  quite  likely  including  myself 
with  all  the  rest,  have  had  notions  concerning  the  conduct  of  business 
which  should  be  changed.  It  is  not  necessary  to  be  specific,  but  when 
we  realize  the  fact  that,  with  the  ability  to  accomplish  great  and  good 
results  is  necessarily  involved  the  power  to  do  wrong,  it  goes  without 
saying  there  should  be  some  way  of  protecting  the  interests  of  large 
aggregations,  so  far  as  they  are  promoting  the  best  interests  of  the 
country  as  well  as  their  own  private  interests,  and  yet  at  the  same  time 
of  preventing  them  from  doing  the  great  wrong  which  they  have  the 
power  to  do. 

If  this  country  is  to  keep  its  position  in  the  contest  with  other  nations 
of  the  world  for  business  success,  if  it  is  to  secure  for  its  people  the  very 
best  results  which  come  from  successful  business,  there  must  be  large 
aggregations  of  wealth.  The  corporation,  having  the  financial  power 
and  strength,  can  do  a  great  many  things  which  the  small  capitalist 
cannot  do.  Other  countries  are  aggressive.  The  business  men  are 
assisted  by  the  Government.  They  are  making  very  great  progress, 
and  we  would  soon  lose  our  position,  in  my  opinion,  if  we  should  go 
back  to  the  old  style  of  doing  business,  which  would  mean  unrestrained 
competition,  destructive  competition  —  destruction  of  the  weaker  indi- 
viduals or  companies  by  the  greater,  and  we  would  have  monopolies, 
and,  more  than  that,  waste  and  abuse  —  abuse  of  the  public,  abuse  of 
the  employees,  and  abuse  of  one  another. 

The  great  corporation  of  financial  strength,  which  is  compelled  in 
the  first  place  to  publish  its  facts  and  figures,  and  in  the  second  place 
to  live  up  to  the  requirements  of  the  law,  is  a  great  benefit.  The 
first  essential,  I  think,  is  publicity.  We  were  early  taught  that  the 
one  who  loves  darkness  is  the  one  whose  deeds  are  evil,  and  that  is 
particularly  true  of  business  life.  There  is  nothing  like  publicity  — 
allowing  the  public  to  look  into  a  company  to  see  what  it  is  doing, 
to  know  what  its  figures  are.  That  is  the  first  essential,  and  the  next 
thing,  as  I  have  said,  is  some  way  of  compelling  the  company  in  its 
daily  conduct  to  live  up  to  the  requirements  of  the  law.  Of  course, 
the  natural  suggestion  is.  Why  cannot  all  the  corporations  live  up  to 
the  requirements  of  the  law  ? 


584  EXCERPTS    FROM    TESTIMONY    BEFORE 

My  answer  to  that  is,  if  you  had  occupied  the  position  I  have  occu- 
pied, you  would  know  ;  you  could  answer  the  question  for  yourselves. 
It  is  very  easy  to  say  the  law  is  simple  and  clear  and  the  corporation 
now  knows  exactly  what  to  do,  but  I  do  not  agree  with  the  statement. 
I  know  that  it  is  not  the  fact.  I  know  that  we  have  been  in  a  position 
of  great  uncertainty  during  the  last  few  years,  and  particularly  during 
the  last  few  months.  We  have  been  very  much  troubled  to  know 
just  exactly  what  our  position  ought  to  be,  what  our  conduct  ought 
to  be,  and  as  a  result  there  has  been  created  in  this  country  a  feeling 
of  great  uncertainty  and  doubt.  Capitalists  who  have  money  to 
invest  have  been  uncertain  as  to  what  they  ought  to  do.  The  cor- 
poration or  capitalist  who  has  been  disposed  to  make  extensions  in 
his  business  lines  has  not  been  willing  to  make  them  because  he  felt 
uncertain  as  to  what  the  result  might  be,  and  whatever  may  be  said 
by  any  one  who  is  not  practically  connected  with  the  business  affairs 
of  life,  I  do  not  hesitate  to  say  that  this  country  has  been  suffering, 
and  is  suffering  to-day,  very  much  because  of  this  feeling  of  uncer- 
tainty. These  men  would  like  to  know  what  they  can  do  ;  what  they 
have  the  right  to  do ;  what  they  have  the  right  to  do  from  the  stand- 
point of  observance  of  the  laws  and  from  the  standpoint  of  the  public 
sentiment,  which  is  just  as  important  to  consider ;  and  they  would  not 
only  like  to  know  that  for  their  present  action,  but  they  would  like 
to  know  it  for  their  future  action. 


Personally  I  should  dislike  very  much  to  see  any  law  which  would 
place  the  business  of  a  corporation  absolutely  under  the  control  or 
direction  of  a  department  of  Government  whose  officials  were  un- 
learned in  the  law.  I  think  the  salvation  of  the  country  really  is  in 
the  courts.  I  do  not  believe  in  the  recall  of  judges  at  all,  and  that 
is  not  saying  anything  against  the  reasons  which  are  given  by  those 
who  urge  it.  It  goes  ^^ithout  saying  that  a  judge  may  make  a  mistake ; 
that  a  judge  may  do  things  he  ought  not  to  do,  but  every  lawyer  on 
this  committee  will  bear  me  out  in  the  statement  that  there  is  very 
little  corruption,  and  very  little  dishonesty  among  judges. 

If  judges  are  all  made  independent  of  the  people,  independent  of 
the  rich  man  and  independent  of  the  poor  man,  so  that  they  are  un- 
influenced by  any  cpestion  except  the  cjuestion  of  what  is  the  right 
thing  to  do,  there  will  be  very  little  danger  of  a  judge  perpetrating 
a  wrong,  in  my  opinion.  I  would  like  to  see  all  the  judges  appointed 
for  life  or  during  good  behavior.  I  would  make  them  removable  for 
cause.  WTien  there  was  cause,  then  they  should  be  removed,  and 
removed  in  a  hurry,  but  not  otherwise.  If  a  judge  is  independent  of 
the  people,  if  he  is  not  seeking  the  influence  or  the  assistance  of  any- 
body, if  he  is  absolutely  independent ;    if  he  is  an  educated  man, 


SENATE  COMMITTEE  OX  INTERSTATE  COMMERCE     s8 


:)05 


selected  because  of  his  merits,  as  the  judges  usually  are  —  I  do  not 
think  we  will  have  any  trouble  from  the  courts.  This  should  be  the 
place  to  which  every  one  might  look  for  final  satisfaction,  relief,  or 
protection. 


But  it  seems  to  me  there  ought  to  be  a  department,  a  commission, 
something  like  the  Interstsate  Commerce  Commission,  that  business 
men  could  be  more  or  less  in  consultation  with.  There  are  times  when 
the  business  men  could  do  something  for  the  country  which,  perhaps, 
under  the  present  Sherman  law  and  the  decisions  which  have  been 
made,  they  would  hesitate  to  do. 

For  instance,  during  the  panic  of  1907,  as  all  of  you  know  —  some 
of  you  better  than  I,  perhaps  —  the  financial  people  of  this  country, 
the  bankers,  were  in  very  grave  doubt  as  to  what  the  result  might  be. 
That  feeling  was  not  confined  to  New  York ;  it  extended  all  over  the 
country,  not  only  in  the  cities,  but  in  the  small  places.  I  know  of 
little  bankers  in  the  interior  who  drew  their  money,  so  far  as  they 
could,  to  the  extent  that  they  could,  from  the  city  banks,  and  put  it 
in  their  vaults.  They  were  all  frightened ;  they  did  not  know  what 
the  result  would  be.  They  wanted  to  protect  themselves  regardless 
of  all  others.  And  at  that  time  the  steel  people  were  approached 
in  one  way  or  another  by  bankers,  by  their  customers  who  had  stocks, 
by  the  leaders  in  their  mills  —  by  the  managers  and  the  foremen  in 
their  mills  —  and  by  business  men  generally,  with  the  statement  that 
if  there  should  be  such  a  demoralization  in  the  steel  business  as  there 
hasbeenin  times  past,  that  the  panic  conditions  could  not  be  changed, 
and  the  results  would  be  dangerous,  and  quite  probably  disastrous. 

Now,  I  was  in  very  great  doubt  at  that  time  what  to  do  to  try  to 
steady  the  steel  business.  Without  taking  any  time  I  will  only  say 
that  you  know,  in  substance^  what  I  did.  I  got  all  the  steel  people 
possible  together,  and  after  stating  to  them  the  conditions,  told  them 
that  we  could  not  make  any  agreement  of  any  sort  or  description,  but 
we  could  consider  one  another's  interests,  and  could  consider  conditions 
and  try  to  take  care  of  our  customers  and  could  do  what  was  in  our 
power  to  do,  without  making  agreements,  to  maintain  the  general 
equilibrium  of  trade. 

I  endeavored  to  get  the  best  advice  possible ;  made  public  what  we 
did ;  gave  it  to  the  newspapers,  notified  the  departments  in  Washing- 
ton what  we  were  doing ;  that  is,  the  Department  of  Justice  and  the 
Department  of  Commerce  and  Labor,  etc.  But  I  was  afraid  all  the 
time  that  there  might  be  some  question  on  the  part  of  some  one  as  to 
whether  or  not  we  were  not  going  too  far. 

Now,  on  such  an  occasion  as  that,  it  would  be  a  great  relief  and  a 
great  benefit  to  have  a  department  that  we  could  go  to  and  say  :  "Here 


586  EXCERPTS   FROM  TESTIMONY   BEFORE 

are  all  the  facts  ;  here  is  what  we  would  like  to  do  ;  here  are  the  results, 
the  probable  results ;  we  do  not  want  to  antagonize  the  law ;  we  do 
not  want  to  do  anything  that  we  ought  not  to  do.  We  would  like 
to  be  a  benefit  to  the  situation  if  we  can.     We  want  your  advice." 

It  would  be  a  great  thing  to  a  business  man.  And  that  often  hap- 
pens in  our  relations  with  foreigners.  As  you  know,  there  are  neutral 
markets  all  over  the  country  where  steel  is  not  manufactured ;  the 
residents  are  simply  purchasers,  and  the  steel  manufacturers  are  selling 
and  delivering  to  those  markets.  It  would  be  a  great  benefit  to  all 
of  us  if  we  had  the  right  to  get  together  and  talk  the  situation  over, 
and  have  such  maps  before  us  as  would  show  which  market  is  most 
readily  and  most  cheaply  reached  by  the  different  steel  manufacturers, 
so  that  as  a  natural  result  we  would  all  save  money.  Although  I 
believe  I  could  do  that  now  without  any  agreement  whatever  by  simply 
coming  into  contact  with  them  and  explaining  the  situation  and  talk- 
ing it  over,  and  trying  to  satisfy  them  by  argument  as  to  what  was 
for  their  particular  interest,  I  believe  in  a  perfectly  legitimate  way, 
yet  I  would  hesitate  to  do  it  now,  in  view  of  what  has  occurred  during 
the  last  year.  It  is  a  pity,  because  I  think  we  could,  legitimately, 
very  materially  extend  our  export  business  at  the  present  time,  and 
I  would  like  to  have  a  department  to  which  I  could  go  and  explain 
the  situation  and  get  advice. 

You  gentlemen  who  have  practiced  law,  as  I  have,  know  very  well 
it  is  the  last  thing  that  a  lawyer  wants  to  do,  to  violate  the  law.  No 
man  of  legal  knowledge  and  legal  experience  would  like  to  violate  any 
law  of  the  country.  At  the  same  time  the  business  interests  of  the 
country  require  that  there  should  be  some  method,  not  of  restraining 
trade,  but  of  expanding  trade,  extending  trade,  increasing  trade. 
That  is  what  w'e  want  to  do.  ■  Our  efforts,  the  efforts  of  our  company, 
have  been  to  foster  competition,  not  to  suppress  it.  W'e  have,  by  our 
connections,  our  associations,  our  friendly  meetings,  our  dinners,  etc., 
endeavored  to  establish  and  maintain  relations  which  are  calculated 
not  to  restrain  trade,  but  to  expand  trade ;  not  to  destroy  competition, 
but  to  build  up  competition ;  not  to  increase  prices,  but  to  prevent 
them  going  up  as  well  as  preventing  them,  so  far  as  we  legitimately 
could,  from  going  down,  certainly,  suddenly.  We  have  never  been 
able  to  do  that,  but  have  done  it  in  a  measvire. 

But  you  have  noticed  during  the  last  year  the  criticisms  before 
some  of  the  committees,  possibly  in  some  of  the  newspapers,  though 
I  do  not  know  whether  that  is  accurate,  of  this  conduct  on  the  part 
of  the  steel  people ;  and  there  have  been  hints  that  it  was  really  a 
method  of  secretly  evading  the  law  and  obtaining  unusual  prices,  un- 
reasonable prices,  etc.  And  in  view  of  this  condition  at  the  present 
time,  and  in  view  of  the  bill  of  complaint  which  has  been  filed,  in  which 
these  Gary  dinners  have  been  referred  to,  I  am  afraid  I  might  antago- 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    587 

nize  public  sentiment  if  I  should  do  anything  to  try  to  maintain  the 
equilibrium  of  trade  at  the  present  time.  And  what  is  the  result? 
Many  of  the  steel  manufacturers  are  selling  to-day  below  cost,  if  you 
take  into  account  wear  and  tear,  take  into  consideration  overhead 
charges  and  that  sort  of  thing ;  making  proper  and  legitimate  and 
necessary  deduction.  And  if  this  be  continued  many  of  them  may  go 
into  bankruptcy. 

Unrestrained  competition  means  the  survival  of  the  fittest.  This 
country  cannot  any  more  go  back  to  the  old  method  of  competition 
than  it  can  deliberately  go  back  to  the  doctrine  of  the  survival  of  the 
fittest,  which  means  the  destruction  of  the  smaller,  the  weaker,  the 
poorer  concerns,  and  the  survival  of  the  few,  and,  therefore,  the  neces- 
sary forcing  of  monopoly  and  restraint  of  trade. 

At  least  those  are  my  views,  and  I  have  studied  the  question  as 
carefully  as  any  one  possibly  can. 

It  is  not  a  fact ;  it  is  a  mistake  to  suppose  that  a  business  man 
knows  what  he  can  do  and  what  he  cannot  do  at  the  present  time. 
I  have  nothing  to  say  against  the  Sherman  law.  I  have  nothing  to 
say  against  what  the  Sherman  law  is  intended  to  prevent.  I  have 
nothing  to  say  against  the  protection  of  every  one.  But  practically  the 
Sherman  law  is  not  adequate  to  meet  the  present  situation.  We 
need  something  more.  These  people  who  take  the  opposite  view 
laugh  at  the  idea  of  the  business  of  a  corporation  being  regulated,  and 
particularly  at  one  connected  with  a  corporation  who  is  willing  to 
have  the  business  regulated.  But  what  are  the  corporations  getting 
now  except  regulation? 

I  reckon  if  the  pupil  in  the  school  should  feel  the  rod  of  the  master 
on  his  head  and  should  hear  the  teacher  say  that  he  was  struck  be- 
cause he  had  been  looking  out  of  the  window  he  would  think  that  was 
some  kind  of  regulation,  and  he  would  prefer  to  have  the  teacher  tell 
him  in  advance  that  if  he  looked  out  of  the  window  he  would  get  hit. 

It  is  a  great  deal  better  to  have  regulation  by  a  department  which 
knows  all  the  facts  from  day  to  day  and  which  can  advise  a  corpora- 
tion than  it  is  to  have  regulation  by  a  lawsuit,  particularly  when  the 
corporation  does  not  know  that  it  is  \aolating  the  law. 

Personally,  it  would  not  make  much  difference  to  our  corporation, 
or  some  of  those  who  believe  as  I  do,  what  the  form  is,  but  of  course  we 
want  to  protect  all  interests. 

Now,  you  could  say,  as  some  of  the  members  of  this  committee  have 
said  publicly  with  great  force,  that  you  can  prevent  by  law  certain 
things  being  done ;  that  you  can  lay  down  in  the  law  itself  certain 
rules  so  as  to  keep  the  corporation  within  a  certain  domain  ;  that  you 
can  provide  that  no  corporation  shall  have  more  than  a  certain  per- 
centage of  the  business ;  that  one  corporation  shall  not  hold  the  stock 
of  another  corporation,  and  various  other  things  of  that  kind ;    that 


588  EXCERPTS   FROM   TESTIMONY   BEFORE 

there  shall  be  no  interlocking  directors,  etc.  The  danger  of  that 
is  that  you  may  restrict  a  corporation  to  a  point  where  it  cannot  reach 
the  highest  success  for  the  country,  for  the  people  themselves.  That 
is  the  danger.  If  large  aggregations  of  capital  are  beneficial,  then  I 
do  not  know  whether  or  not  there  is  a  point  beyond  which  you  can  say 
they  are  not  of  an  increasing  benefit.  It  is  just  as  necessary  to  have 
some  measure  that  will  protect  and  promote  the  interests  of  capital 
itself  as  it  is  to  protect  those  who  are  influenced  on  the  outside  by 
capital.  And  if  you  can  have  some  kind  of  governmental  control  or 
regulation  which  absolutely  secures  the  public  against  imposition 
and  oppression,  then  it  seems  to  me  the  importance  of  these  other 
questions  is  modified. 


STATEMENT  OF  J.   R.  MOOREHEAD,  NATIONAL  SECRE- 
TARY, OF  THE  NATIONAL  FEDERATIONS  OF  RETAIL 
MERCHANTS,  LEXINGTON,  MO.^ 


Bradstreet  reports  1,778,425  as  the  number  of  manufacturers, 
wholesalers,  jobbers,  retailers,  bankers,  and  trust  companies  as  doing 
business  in  this  country.  I  am  advised  that  there  are  something 
like  28,000  banks  and  trust  companies  thus  listed.  I  am  not  able  to 
say  just  how  many  manufacturers,  wholesalers,  jobbers,  and  sundry 
lines  are  thus  reported,  but  I  am  surely  safe  in  saying  that  more  than 
1,000,000  of  these  are  retail  merchants ;  in  fact,  men  of  small  means, 
absolutely  depending  upon  their  retail  business  for  support  of  them- 
selves and  their  families.  It  is  safe  to  say  that  each  of  them  employs 
directly  at  least  three  people.  This  million  or  more  of  firms  and  in- 
dividuals therefore  constitute  a  considerable  percentage  of  our  popula- 
tion when  we  add  to  their  numbers  their  families  and  dependents, 
and  when  we  consider  that  the  progress  and  prosperity  of  the  thousands 
of  communities  in  which  they  do  business  largely  depend  upon  these 
retail  merchants.  And  I  may  add  here  that  all  these  merchants  and 
their  families  and  employees  are  consumers  upon  which  the  farmers 
directly  depend  for  their  home  market,  the  best  market  they  have  to 
depend  upon. 

You  will  all  agree  that  there  are  grave  problems  confronting  big 
business  of  this  country,  and  there  are  grave  problems  confronting 
Congress  and  the  people  of  the  country  in  dealing  with  big  business. 
I  want  to  say  that  although  it  may  not  have  been  intentional  on  the 

1  Pp.  913-920, 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE     589 

part  of  those  who  are  responsible  for  the  present  situation  —  and 
I  have  no  reason  to  believe  that  it  is  —  there  are  also  grave  problems 
confronting  the  small  business  men  of  the  country.  I  want  to  say 
in  the  beginning  that  many  of  the  stones  that  are  being  cast  at  the  big 
fellows  are  missing  the  mark  and  crossing  the  street  and  breaking  the 
windows  of  the  little  fellows.  In  other  words,  the  efforts  that  are 
being  made  to  curb  the  powerful,  the  rich,  and  the  grasping  are  recoil- 
ing upon  that  class  of  men  in  this  country  for  whom  we  believe  it  was 
not  intended,  those  who  are  the  least  able  and  the  least  organized  to 
secure  their  rights  and  combat  the  opposition.  In  other  words,  we 
know  that  the  antitrust  law  of  the  Nation  and  the  States  as  well  is 
being  perverted  and  is  being  used  for  ends  that  were  never  intended, 
and  should  present  conditions  continue  would  bring  about  a  situation 
that  cannot  be  later  on  remedied.  There  are  no  longer  any  uncertain 
theories  confronting  the  little  man  in  business.  We  have  a  condition, 
and  had  we  come  here  oftener  and  made  our  wants  known  and  our 
influence  in  politics  felt,  long  since,  perhaps,  the  status  of  these  I  have 
the  honor  to  represent  could  be  better  determined. 

First.  There  is  a  great  outcry  in  this  country  just  now  for  the  elimi- 
nation of  the  "middle  man,"  better  known  as  the  retail  merchant,  al- 
though the  wholesaler  and  jobber  may  be  classed  as  such.  Our 
answer  to  this  demand  is  that  we  do  not  propose  to  be  eliminated 
if  concerted  action  on  our  part  should  be  able  to  show  the  Congress 
and  the  legislatures  of  the  several  States  that  we  have  a  place  in  the 
economy  of  the  country  and  that  our  preservation  is  for  the  best 
interest  of  the  greatest  number ;  best  for  their  economical,  political, 
and  social  welfare.  This  outcry  emanates  from  four  principal  sources : 
First.  The  great  aggregations  of  capital  known  as  mail-order  houses ; 
second,  almost  all  of  what  are  known  as  farm  journals ;  third,  a  great 
part  of  the  metropolitan  press;  fourth,  many  politicians  seeking  to 
curry  favor  with  the  farming  and  laboring  classes.  These  elements 
in  our  national  make-up,  along  with  others  of  lesser  influence,  have 
brought  about  a  condition  in  the  minds  of  the  public  adverse  to  the 
retail  merchants,  especially  among  the  farmers  and  laboring  men,  that 
is  no  less  than  criminal.  To  my  mind,  this  is  the  most  serious  side 
of  the  whole  question.  Just  to  think  that  it  has  been  possible  in  this 
country  of  ours  to  so  organize  and  conduct  a  campaign  of  advertising 
to  so  poison  the  minds  of  hundreds  of  thousands  of  people  scattered 
all  over  the  country  against  their  neighbors,  the  home  merchant, 
that  they  will  not  even  give  us  a  chance  to  meet  outside  competition. 
Under  these  false  representations,  carried  on  for  so  long,  the  public 
seems  not  able  to  distinguish  between  our  efforts  to  obtain  a  fair 
living  and  the  practice  of  extortion.  They  set  us  down  as  extortionists, 
without  argument  or  chance  to  be  heard. 

I  am  not  here  to  criticize  the  President  of  the  United  States  or  the 


590  EXCERPTS   FROM   TESTIMONY   BEFORE 

Attorney  General  or  any  of  his  assistants.  I  have  had  occasion  to 
more  particularly  call  the  President's  attention  to  some  of  these  facts 
and  conditions,  and  the  reply  to  my  communication  comes  through 
the  office  of  the  Attorney  General  to  the  effect  that  "It  is  not  the  duty 
of  those  upon  whom  the  responsibility  of  the  enforcement  of  a  law  is 
imposed  to  consider  general  economic  questions  in  determining  whether 
a  prosecution  should  be  had  for  its  \iolation."  This  being  the  case, 
which  I  am  perfectly  willing  to  admit  without  any  question  whatever, 
then  it  is  the  duty  of  Congress  to  settle  economic  questions  if  it  is  in 
their  power  so  to  do.  I  have  mentioned  four  of  the  principal  elements 
that  are  just  now,  intentionally  or  not,  working  to  the  undoing  of  the 
little  man  in  business.  Gentlemen,  the  attempt  at  combination  or 
concentration  of  business  into  the  hands  of  a  few  is  no  more  manifest 
or  real  than  is  now  being  brought  about  in  the  distribution  of  mer- 
chandise of  every  kind,  known  as  the  retail  business.  This  country 
has  been  wonderfully  prosperous  in  the  last  lo  years.  I  venture  to 
assert  that  there  never  was  a  time  in  the  history  of  this  country, 
taking  into  account  the  last  five  years  or  more,  when  there  were  so 
many  people  in  every  walk  of  life  who  were  doing  so  well,  making  such 
a  good  living,  getting  such  prices  for  farm  products  and  live  stock, 
making  better  wages,  better  housed,  better  fed,  better  clothed,  and, 
taking  all  things  into  consideration,  no  greater  general  prosperity 
ever  existed  in  the  country.  We  can  and  do  rejoice  in  this  fact.  Not 
one  of  us  would  reduce  the  price  of  a  single  item  raised  upon  our  farms 
or  produced  by  our  labor;  but  I  am  confident  that  I  am  within  the 
truth  when  I  say  that  the  million  or  more  retail  merchants  of  this 
country  have  received  less  of  the  benefits  growing  out  of  this  great 
era  of  prosperity  than  any  one  other  class  of  our  people.  I  feel  safe 
in  saying  that  the  little  merchants  of  the  country  have  not  reaped  their 
share  of  the  reward.  Their  business  nor  their  profits  have  grown  in 
proportion  to  the  general  prosperity  that  surrounds  us.  Certainly 
there  has  been  a  greater  consumption  of  merchandise  in  the  shape  of 
clothing,  food,  and  every  other  class  of  goods  used  by  humanity; 
but  the  increase  has  not  fallen  into  the  lap  of  the  small  retailer. 

When  you  have  the  opportunity  to  go  amongst  your  constituents, 
who  are  the  retailers  of  merchandise,  you  will  surely  find  that  the  great 
majority  of  them  have  done  little  more  than  hold  their  own.  Many 
of  them  do  not  do  that  well.  Farm  lands  have  increased  beyond  all 
expectations,  and  I  am  not  saying  they  are  too  high.  Wages  have 
increased,  but  I  do  not  say  that  labor  is  too  well  paid.  No  one  knows 
better  than  those  for  whom  I  speak  that  upon  these  two  elements  rest 
our  security  and  prosperity,  and  they  have  no  better  friends  or  defenders 
in  the  country  than  their  home  merchants,  but  we  do  assert,  with 
emphasis,  that  the  business,  the  storehouses,  the  homes,  the  stocks  of 
goods,  and  the  profits  of  the  retailers  have  not  grown  in  proportion 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    591 

to  that  obtained  by  either  of  the  above-mentioned  class  or  any  others. 
Where  has  it  gone?  Who  has  gathered  the  harvest?  I  have  said 
that  "mail-order  houses"  are  one  of  the  factors  that  has  brought  about 
this  condition  of  affairs.  What  are  some  of  the  facts?  It  has  gone 
the  rounds  of  the  press,  and  is  no  doubt  a  fact,  that  one  of  these  houses 
alone  sold  more  than  $63,000,000  of  merchandise  by  mail  last  year. 
The  business  of  one  increased,  it  is  said,  1000  per  cent  in  three  years 
—  so  much  business  that  they  were  scarcely  able  to  take  care  of  it. 
And  while  the  "control  of  trusts"  and  the  influence  of  Wall  Street  are 
pertinent  questions  for  debate  at  this  time,  I  venture  to  remind  you 
that  it  is  not  disputed  that  the  chairman  of  the  board  of  directors  of  the 
largest  mail-order  house  in  this  country  is  the  president  of  one  of  the 
largest  banks  in  New  York.  It  might  not  be  out  of  place  to  suggest 
that  this  would  be  a  fruitful  field  for  investigation.  If  the  business 
of  this  class  is  to  go  on  increasing,  how  long  will  it  be  before  there  will 
be  dictation  to  the  jobber,  wholesaler,  and  manufacturer  as  to  whom 
they  shall  sell,  and  we  can  imagine  what  would  happen  to  the  little 
fellow  in  business. 

I  have  referred  to  the  feeling  of  public  sentiment  which  has  obtained 
in  the  public  mind  against  the  retail  merchant.  Ever  since  this 
method  of  merchandising  by  mail  began  to  take  root  in  this  country 
a  great  part  of  their  advertising  has  not  been  in  praise  of  their  wares, 
but  has  been  a  tirade  of  insinuation,  misrepresentation,  and  abuse  for 
the  home  merchants,  as  being  nothing  more  than  robbers  and  thieves, 
and  when  we  attempt  to  get  together  to  protect  our  business,  our 
homes,  and  our  families  we  find  out  how  they  are  able  to  invoke  in 
their  own  behalf  the  antitrust  laws  of  the  country.  Almost  without 
exception  the  greater  part  of  the  advertising  revenue  of  the  farm 
journals  comes  from  the  mail-order  house,  just  as  the  daily  press  is 
largely  supported  by  revenues  from  the  large  department  stores.  I 
think  you  can  readily  see  why  there  is  rarely  ever  a  good  word  spoken 
for  the  little  man  in  business  from  these  sources.  There  are  undoubt- 
edly exceptions,  but  they  are  exceedingly  rare. 

I  want  to  quote  from  an  editorial  which  recently  appeared  in  a  farm 
journal  which  bears  the  name  of  one  of  the  most  prominent  men  of 
our  day.     It  says : 

The  fact  is  that  outside  of  mining  and  manufacturing  districts,  and  cities 
where  there  are  colleges,  academies,  and  other  schools,  the  country  town 
exists  simply  for  supplying  the  wants  of  the  people  on  the  farms.  With 
the  exceptions  above  noted,  the  country  town  has  no  other  conceivable 
reason  for  its  existence. 

I  want  also  to  quote  from  an  editorial  in  a  daily  paper  written  in 
connection  with  the  discussion  of  the  passage  of  a  parcels-post  law : 


592  EXCERPTS   FROM  TESTIMONY  BEFORE 

Bui  suppose  the  parcels  post  should  drive  the  country  merchant  out  of 
business.  This  could  only  happen  because  of  a  more  effective  and  economi- 
cal method  of  supplying  goods  to  the  people,  and  therefore  the  country  as 
a  whole  would  be  benefited  and  the  country  merchant  himself  could  find  a 
more  beneficial  way  of  earning  a  living. 

From  which  editorial  I  can  only  infer  that  economy  in  distribution, 
if  that  were  actually  true,  is  the  only'feature  to  be  considered  in  deter- 
mining what  is  best  for  the  greatest  number  of  our  people,  and  that 
for  a  million  or  more  retail  merchants  to  go  out  and  seek  other  methods 
of  making  a  living,  together  with  the  fifteen  or  twenty  millions  de- 
pending upon  them,  is  of  small  conseciuence  to  such  as  preach  the  doc- 
trine as  above  quoted.  Without  going  further  into  details  I  am  sure 
you  can  see  the  trend  of  public  sentiment  and  the  cause  therefor. 
I  do  not  blame  the  farm  journals  for  standing  up  for  those  who  sup- 
port them,  for  they  could  not  exist  without  this  kind  of  support. 
I  do  not  blame  the  daily  press  for  talking  for  the  great  department 
stores  which  furnish  them  with  such  profitable  business ;  they  would 
be  ingrates  if  they  did  not.  But  I  do  complain,  and  we  beUeve  we 
have  a  just  complaint,  when  we  find  ourselves  involved  in  this  already 
unequal  struggle  and  the  Government  steps  in  and  says,  "Stop;  you 
are  restraining  the  trade  of  the  mail-order  house,  the  manufactur- 
ers and  the  big  fellows.  You  are  operating  a  new  kind  of  trust,  a  trust 
of  power."  What  greater  trust  of  power  could  there  be  than  that  of  a 
great  aggregation  of  capital  to  spread  it  broadcast  through  the  daily 
and  farm  press  and  catalogues  that  they  can  sell  their  wares  at  half 
the  price  charged  by  the  home  merchants  ? 

To  be  more  specific,  a  United  States  grand  jury  in  Chicago  recently 
indicted  14  secretaries  of  as  many  retail  lumber  associations,  and  I  am 
informed  upon  good  authority,  by  the  parties  themselves,  that  the 
retail  implement  dealers'  association  and  the  retail  coal  dealers' 
association  are  undergoing  the  same  kind  of  an  investigation.  It  is 
only  fair  to  presume  that  these  latter  two  organizations,  and  perhaps 
others,  will  meet  the  same  fate  as  the  lumber  secretaries  have,  for 
during  the  recent  trip  of  the  President  across  the  country  he  certainly 
made  it  plain  that  all,  at  least,  would  have  to  submit  to  the  same 
methods  of  investigation,  and  the  legal  department  of  the  Govern- 
ment seems  to  be  entirely  in  accord  with  this  plan  of  procedure. 
Civil  action  has  also  been  brought  against  a  number  of  the  lumber 
associations,  and  I  am  quite  sure,  had  the  legal  department  of  the 
Government  been  willing  to  stop  here,  that  they  would  have  welcomed 
the  opportunity  of  finding  out  whether  or  not  they  were  violating  a 
law  which  no  one  seems  to  be  able  to  correctly  interpret.  I  call  your 
attention  to  the  fact  that  in  bringing  indictments  above  referred  to, 
the  Government  had  to  admit,  or  at  least  could  not  charge,  that  these 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE     593 

organizations,  which  their  secretaries  represented,  "had  no  incorpora- 
tion, no  capital  stock,  and  did  not  even  try  to  control  prices  among 
themselves,"  and  we  are  safe  in  saying  that  other  organizations  which 
will  have  to  submit  to  like  treatment  will  be  able  to  show  likewise. 
But  what  is  the  charge?  In  short,  it  is  that  these  retail  merchants 
have  been  guilty  of  "restraining  the  trade  of  certain  companies  and 
corporations  by  furnishing  information  to  its  membership."  As  to 
their  double  dealing  and  duplicity,  which  I  wish  to  remind  you, 
it  is  in  no  wise  charged  as  being  false  in  any  particular.  If  I  steal  a 
horse,  and  my  neighbor  or  a  newspaper  charges  me  with  the  crime 
and  the  charge  is  proven  in  court,  I  have  no  recourse ;  but  if  I  can 
show  that  I  did  not  steal  the  horse,  have  I  not  recourse  to  the  law 
against  my  neighbor  or  the  newspaper  for  libel  or  damage  to  character  ? 
Nowhere,  at  no  time,  has  any  person,  company,  or  corporation  sought 
redress  because  of  any  false  statements  being  made  or  published.  If 
it  is  unlawful  to  furnish  information  of  this  character  to  each  other  as 
to  the  action  or  practices  of  a  manufacturer,  wholesaler,  or  mail-order 
house,  why  is  it  not  also  unlawful  for  Dun's  or  Bradstreet's  to  furnish 
the  manufacturers  or  wholesalers  with  the  information  that  will  enable 
them  to  avoid  great  loss  in  the  sale  of  merchandise  to  the  retailer  ? 
What  is  the  difference  ?  If  a  manufacturer  or  wholesaler  sells  me  a 
stock  of  goods  to  be  sold  at  retail  and  then  turns  around  and  sells 
to  my  customers,  wherein  is  the  difference  between  my  telling  or  re- 
porting this  fact  to  my  fellow  merchants  and  a  commercial  agency  re- 
porting me  as  not  being  worthy  of  credit,  or  that  I  had  mortgaged  my 
property  and  was  not  therefore  considered  responsible  for  my  obliga- 
tions? But,  gentlemen,  that  was  not  the  milk  in  the  coconut  in  the 
actions  referred  to. 

.  .  .  The  retail  merchants,  for  whom  I  speak,  do  not  ask  you  to  pass 
any  law  or  make  any  amendments  to  the  present  law  that  will  in  any 
way  curtail  the  rights  of  those  who  are  surely  working  to  the  reduction 
of  the  little  merchants  to  nothing  more  than  makeshifts ;  to  serve  as  an 
accommodation  when  the  people  have  no  money  to  send  away  from 
home  for  what  they  want,  when  crops  fail  and  when  the  strike  is  on. 
All  that  we  ask  is  a  chance  for  a  fair  fight  and  no  favors,  but  we  do 
insist  that  this  law  shall  in  some  way  be  made  so  plain  along  these 
lines  that  the  threat  of  being  sent  to  jail  will  not  be  hanging  over  us 
when  we  join  hands  to  fight  for  our  business  existence,  upon  which  so 
much  depends,  our  happiness  and  the  welfare  of  our  families  and  every 
one  in  the  communities  in  which  we  are  perchance  doing  business.  It 
is  out  of  all  reason  to  think  that  the  business  man  has  to  submit,  or 
work  under  a  law  the  uncertainties  of  which  are  such  that  he  has  no 
idea  or  conception  of  his  standing  before  such  a  law  until  he  has  been 
brought  into  court  and  tried.  Therefore,  it  would  seem  that  it  should 
be  the  aim  of  Congress  to  make  it  so  plain  in  so  far  as  it  affects 


594  EXCERPTS   FROM   TESTIMONY   BEFORE 

voluntary  associations  of  business  men  not  formed  for  making  prices 
or  profits  that  "he  who  runs  may  read."  Does  this  seem  to  be  an  un- 
reasonable demand,  although  the  exact  terms  in  which  it  is  to  be  ex- 
pressed may  not  at  this  time  be  clear?  We  are  restless  under  suspicion 
and  surveillance,  when  Government  and  State  officials  are  upon  our 
heels  and  delving  into  our  business. 

.  .  .  The  retail  merchant  is  not  going  to  be  put  out  of  business,  but 
he  will  be  reduced  to  a  mere  means  of  accommodation  to  those  who  have 
not  the  cash  to  send  away  from  home  to  supply  their  wants.  We  be- 
lieve we  have  a  right  to  more  than  this.  We  believe  that  we  are  of  as 
much  a  necessity  to  the  community  as  the  farmer,  laborer,  the  doctor, 
lawyer,  or  postmaster.  We  believe  that  a  good  live  town,  with  live 
merchants  making  something  more  than  a  living,  are  as  much  of  a 
necessity  in  our  economy  as  is  the  farmer.  For  you  cannot  deny  that 
every  acre  of  land  is  increased  in  value  in  proportion  to  its  proximity 
to  a  good  town  or  city,  and  depreciates  in  value  just  in  proportion  to 
its  distance  from  a  good  town  or  city.  A  good  town  or  city  is  as  much 
of  a  necessity  to  the  farmer  as  the  farmer  to  a  good  town.  It  appears 
to  us  that  such  a  condition  would  be  ideal  in  this  country  and  should 
not  be  in  any  wise  disturbed  or  discounted,  even  though  it  might  be 
admitted  that  the  farmer  or  any  other  citizen  might  save  in  a  small 
way  upon  his  purchases  when  sent  to  a  city.  .  .  . 


STATEMENT  OF  MR.  FRANCIS  L.  STETSON,  LAWYER,  OF 
NEW  YORK,   N.Y.i 

Mr.  Stetson.  Mr.  Chairman  and  gentlemen,  the  question  of 
remedies  must  be  considered  with  reference  to  the  condition  of  public 
sentiment  as  well  as  in  view  of  economic  requirements. 

The  experience  of  the  21  years  since  the  passage  of  the  Sherman 
law,  and  analogous  enactments,  in  many  of  the  States  indicates  an 
almost  unparalleled  unanimity  and  persistence  of  public  sentiment 
that  some  such  law  must  be  maintained. 

Thus  it  must  be  conceded  that  the  question  of  remedy  is  one  not 
now  susceptible  of  unrestricted  consideration,  but  is  what  may  be 
done,  not  what  should  be  done. 

This  condition  may  not  continue  indefinitely,  for  if,  as  I  believe,  the 
Sherman  law%  like  high  protection,  involves  economic  error,  then  it 
is  certain  that  ultimately  the  people  will  come  to  a  recognition  of  in- 
justices in  laws  against  all  trade  combinations  and  agreements,  just 
as  now  they  are  awakening  to  the  evils  of  high  protection. 

i*Pp.  956-964. 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE     595 

For  the  present,  however,  they  have  analyzed  the  compound  term 
political  economy,  and  disregardful  or  distrustful  of  practical  economics 
and  those  representing  them,  have  made  the  entire  subject  one  of  polit- 
ical consideration  and  are  not  prepared  to  tolerate  or  to  palter  with  any 
proposition  to  weaken  the  law. 

This  result  involves  a  remarkable  reaction.  During  the  first  century 
of  our  independence,  the  ideal  of  America  was  business  enterprise  to 
a  degree  unexampled  in  any  previous  age  or  in  any  other  country. 
To  labor,  to  invent,  to  save,  to  accumulate,  to  invest,  and  to  accumu- 
late still  more  was  the  commended  career  of  the  so-called  successful 
man  in  every  community  and  in  all  callings. 

Suddenly  and  almost  without  warning  a  wave  of  popular  reaction 
coming  out  of  the  northwest  overspread  the  country.  The  granger 
legislation  of  the  late  seventies  found  sympathetic  response  in  Texas 
in  the  early  eighties,  and  resulted  in  the  interstate  commerce  act  of  1887 
and  the  Sherman  law  of  1890. 

The  new  legislative  policy  and  the  public  sentiment  underlying 
these  acts  was  a  stumbling  block  and  foolishness  to  the  man  of  affairs, 
bred  and  developed  in  the  conditions  previously  adopted  and  main- 
tained by  all  the  people. 

The  ideals  of  the  legislator  fairly  representing  the  mass  of  his 
constituents,  had  parted  company  with  the  ideals  of  that  portion  of 
his  constituents,  fewer  in  number  but  important  in  influence,  conduct- 
ing the  industries  of  the  country. 

The  conflict  of  views  and  ideals  thus  developed,  like  all  other  con- 
flicts, has  had  to  run  its  course  tfll  one  or  the  other  party  was  ex- 
hausted. Now  we  are  at  the  point  of  e.xhaustion  of  our  industries  and 
of  those  engaged  in  them. 

In  the  course  of  the  long  period  of  conflict,  as  always  is  the  case, 
painful  and  harmful  hatred  and  regrettable  misunderstandings  have 
been  fomented.  One  class  has  distrusted  the  motives  and  the  sin- 
cerity of  the  other  class.  The  country  has  been  divided  into  rival 
camps,  as  harmfully  hostile  as  though  arrayed  for  physical  warfare. 

The  time  has  come  to  preach  a  gospel  of  reconciliation.  Let  us  have 
peace,  not  peace  at  any  price,  but  peace  with  honor.  The  law  has  been 
interpreted  and  established.  It  must  be  accepted  and  maintained, 
but  as  the  law  exists  not  for  itself  alone  but  for  the  prevention  of 
injury  to  the  public,  its  enforcement  should  be  made  practicable 
with  the  least  possible  injury  to  the  vast  volume  of  the  industries  of 
the  public. 

These  observations  may  seem  to  come  within  the  category  of 
"glittering  generalities,"  but  in  my  opinion  no  specific  or  effectual 
remedy  can  be  found  unless  sought  for  under  the  influence  of  an 
earnest  and  patriotic  determination  to  promote  the  general  welfare 
and  not  that  of  any  particular  class. 


596  EXCERPTS   FROM  TESTIMONY   BEFORE 

Coming  now  to  the  question  of  specific  remedies  and  disclaiming 
any  peculiar  fitness  to  advise  this  committee,  which  of  its  own  motion 
has  honored  me  with  its  invitation,  I  would  say  I  find  much  to  my  lik- 
ing in  the  late  message  of  President  Taft,  in  the  bill  of  Senator  La 
Follette,  and  in  the  suggestions  of  Judge  Gary. 

In  the  message  of  President  Taft,  I  like  his  idea  of  a  voluntary 
Federal  incorporation,  of  permissive  Federal  license,  and  of  a  corpora- 
tion commission. 

In  the  bill  of  Senator  La  Follette,  I  see  light  in  his  definition  of  things 
that  business  may  do,  though  these  definitions  may  be  modified 
before  adoption.  As  an  important  business  man  once  said  to  me: 
"  I  do  not  so  much  care  what  the  law  is,  as  to  know  what  it  is; 
when  I  know  what  it  "is,  I  will  conform  to  it." 

I  accept  the  principles  involved  in  the  suggestions  of  Judge  Gary  up 
to  the  point  of  governmental  regulation  of  prices  which  lies  somewhat 
beyond  my  experience  and  mode  of  thought. 

My  acceptance  of  these  general  propositions  involves  the  follo^^ing 
considerations : 

The  Sherman  law  as  it  now  exists  may  not  be  amended,  but  it  should 
be  supplemented. 

In  whatever  cases  are  committed  to  it  by  the  wisdom  and  express 
enactment  of  Congress,  the  proposed  corporation  commission  should 
have  power  to  make  and  revoke  its  declaration  of  the  innocuousness  of 
any  particular  corporation  or  agreement,  and  during  the  continuance  of 
such  declaration,  the  Department  of  Justice  should  be  relieved  from 
the  duty  of  proceeding  against  the  corporation  in  respect  of  any 
matter  covered  by  such  declaration. 

This  method  of  procedure  would  leave  the  law  unimpaired  and  also 
would  leave  the  corporation  free  to  assert  its  legal  defenses,  and  it 
would  avoid  the  question  of  any  improper  delegation  of  jurisdiction, 
either  legislative  or  judicial. 

For  the  protection  of  the  public  investing  in  securities,  the  pro- 
posed corporation  commission  should  have  power  to  make,  but  not 
to  revoke,  a  declaration  as  to  the  innocuousness  of  any  corporation 
hereafter  formed  in  its  organization,  or  in  the  acquisition  of  properties 
constituting  part  of  its  capital  stock ;  and  no  prosecution  or  dis- 
solution of  the  corporation  for  any  matter  covered  by  such  declara- 
tion should  be  permitted  after  a  period  to  be  prescribed  by  the  act. 

The  definite  views  that  I  hold  with  reference  to  existing  corporations 
may  not  properly  be  made  the  object  of  presentation  by  me  at  the 
present  juncture,  but  I  may  call  attention  to  the  difficulty,  if  not  the 
irnpossibihty,  of  compelling  a  recapitalization  of  stocks  and  bonds  dis- 
tributed and  owned  throughout  the  world  as  a  condition  of  continuing 
the  business  of  interstate  commerce.  As  to  any  important  corpora- 
tion, the  suspension  of  its  business  during  the  interval  required  for 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE     597 

the  consummation  of  any  reduction  would  injure  the  pubUc  more  than 
any  conceivable  benefit  therefrom. 

As  to  holding  companies,  there  are  two  possible  injuries,  one  that 
to  the  dissentient  stockholders  of  the  corporations  whose  stock  is 
held,  and  the  other  to  the  dissentient  stockholders  of  the  holding  com- 
pany. These  evils  could  be  relieved  by  providing  for  the  approval  and 
purchase  of  their  shares  as  in  case  of  consolidation.  As  a  speedy  and 
effective  means  of  consolidation  in  cases  authorized  by  law,  the  ac- 
quisition of  stocks  is  highly  convenient  and  apparently  harmless. 
(See  Hill  vs.  Nisbet,  100  Ind.  341.)  For  instance,  it  is  wholly  im- 
material whether  the  United  States  Steel  Corporation  holds  any  one  of 
its  subsidiary  New  Jersey  corporations  by  owning  all  of  its  stock, 
or  by  consolidation  which  is  authorized  by  law. 

In  advance  of  any  Federal  license,  corporations  should  be  permitted 
to  register  and  to  proceed  thereunder,  for  the  number  of  corporations 
applying  for  license  would  be  so  vast  as  to  congest  the  business  of  the 
country  awaiting  action. 


Senator  Cummins.  In  the  Northern  Securities  Co.  case  the  power 
to  suppress  competition  arose  not  out  of  the  magnitude  of  corpora- 
tions, but  out  of  the  location  of  the  railway  company  and  its  proper- 
ties, and  of  course  the  impossibility  of  the  people  in  that  part  of  the 
country  resorting  to  any  other  means  of  transportation.  But  I  want 
to  take  your  mind  away  from  that  for  a  moment  to  the  general  in- 
dustrial corporations  which  operate  everywhere,  and  can  operate 
everywhere,  and  ask  you  whether  you  believe  the  law  prohibits  the 
organization  of  a  corporation  or  a  combination  so  large,  and  embrac- 
ing so  much  of  the  business,  that  it  will  be  able  to  dominate  the  par- 
ticular field  in  which  it  operates  even  though  the  power  has  not  been 
exercised  ? 

Mr.  Stetson.   You  ask  for  my  belief? 

Senator  Cummins.   Yes. 

Mr.  Stetson.  I  do  not  believe  that  it  does.  I  have  advised  that 
it  does  not.     That  is  not  only  my  belief,  but  my  advice. 

Senator  Cummins.  Therefore  the  antitrust  law,  from  your  stand- 
point, would  need  no  supplement  or  amendment  in  order  to  permit 
organizations  of  that  character  with  that  power? 

Mr.  Stetson.  Not  if  everybody  would  be  kind  enough  to  accept, 
as  some  people  do,  my  opinion  upon  the  subject.  But  if  the  question 
still  be  regarded  by  many  as  still  open  there  is  no  point  whatever  of 
more  difficulty  with  the  public  than  that.  For  instance,  I  do  not 
recall  that  I  have  advised  the  formation  of  any  combination  since  the 
decision  in  the  Northern  Securities  case.  I  do  not  know  what  to 
advise  as  lawful.     I  should  not  advise  the  formation  of  any  corporation 


598  EXCERPTS   FROM   TESTIMONY   BEFORE 

until  that  is  settled.  That  is  one  of  the  things  that  has  unsettled 
business.  Men  are  stopping ;  they  are  not  going  on.  The  reason  is 
that  they  could  not  get  from  their  trusted  counsel  advice  that  it  is 
wise  or  prudent  to  go  on.  Now,  unless  the  intimations  of  the  court 
are  not  to  be  followed,  and  possibly  it  may  yet  be  decided  that  the 
law  is  created  by  the  mere  acquisition  of  power  to  suppress  competi- 
tion, or  by  the  mere  termination  of  competition  between  industries 
combining  for  legitimate  business  reasons,  a  remedy  should  be  given 
by  Congress.  The  courts  cannot  and  ought  not  attempt  to  give  it  in 
case  they  determine  to  the  contrary  the  meaning  of  the  existing  law. 

Senator  Cummins.  That  is  one  of  the  uncertainties  which  now 
exist  in  the  business  world? 

Mr.  Stetson.  I  think  it  is  the  greatest  uncertainty  in  my  experience. 

Senator  Cummins.  If  it  is  entirely  apart  from  any  vicious  or  op- 
pressive practices,  the  organization  which  has  grown  or  is  immedi- 
ately combined  to  the  extent  that  it  can  dominate  in  a  practical  way 
the  business  of  which  it  is  a  part ;  nobody  knows  whether  that  is  in 
violation  of  the  law  or  not,  as  yet  ? 

Mr.  Stetson.  I  think  no  one  can  certainly  say.  A  good  many 
people  may  think  they  know,  but  no  one  can  say  with  confidence. 

Senator  Cummins.  At  any  rate,  the  people  who  do  the  business  of 
the  country  are  not  willing  to  take  the  risk  of  the  determination  of 
that  question. 

Mr.  Stetson.  The  Attorney  General  of  the  United  States,  at  a 
dinner  that  was  given  in  New  York  immediately  after  his  appoint- 
ment, indicated  the  disposition  of  the  administration  not  to  view 
harshly  things  that  had  been  done  before  in  ignorance.  He  said, 
"Hereafter  whatever  is  done  is  going  to  expose  one  to  the  extreme 
penalties."  With  such  a  warning  as  that,  no  one  wished  to  take  any 
chances. 

Senator  Cummins.  Must  it  not  always  be  true,  Mr.  Stetson,  that 
the  judgment  of  a  court  as  to  whether  an  organization  of  the  char- 
acter I  have  described  is  or  is  not  in  restraint  of  trade  must  depend 
upon  the  economic  view  and  training  of  the  judge  who  announces  the 
opinion  ? 

Mr.  Stetson.   Very  largely. 

Senator  Cummins.  It  is  not  likely  in  the  course  of  development 
that  any  two  such  combinations  or  corporations  will  be  so  similar 
and  exercise  so  nearly  the  same  influence  that  a  judgment  as  to  one 
can  be  accepted  as  final  or  conclusive  as  to  the  other? 

Mr.  Stetson.  It  seems  so  to  me.  Therefore  I  think  it  is  beyond 
the  province  of  the  judge,  as  I  have  just  said,  or  the  court,  to  pass 
upon  that  question. 

Senator  Cummins.  Therefore  —  it  may  be  included  in  your  sugges- 
tion, and  I  rather  think  it  is  —  do  you  not  think  that  somewhere  or 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    599 

somehow  there  should  he  reposed  in  a  Government  tribunal,  not  ju- 
dicial, the  authority  to  say  when  such  a  combination  or  organization 
is  proposed  whether  that  particular  combination  or  corporation,  by 
reason  of  the  power  that  it  may  exercise,  is  or  is  not  in  violation  of 
the  law  in  advance  of  its  actual  organization  or  creation? 

Mr.  Stetson.  That  is  what  I  think,  or,  at  least,  as  I  intended  to 
convey  in  what  I  said  at  the  outset.  Such  a  declaration  should  be 
obtainable  promptly  upon  organization,  though  perhaps  not  in  ad- 
vance of  the  organization.  As  you  know,  such  projects  move  very 
quickly.  When  a  business  man  entertains  an  idea  it  develops  almost 
immediately  into  practice,  and  you  will,  I  think,  find  that  the  cor- 
poration would  have  to  come  into  existence  as  a  corporation,  though 
before  the  transaction  of  business.     It  is  come  into  that  part. 

Senator  Cummins.   Technically  into  existence? 

Mr.  Stetson.  I  mean  the  mere  scheme  of  a  corporation  about  to 
be  formed  could  not  be  submitted. 

Senator  Cummins.  I  agree  with  you  perfectly  that  it  would  have 
to  take  such  form,  of  course,  as  to  be  judged. 

Mr.  Stetson.  So  that  it  could  be  definitely  presented  and  passed 
upon.  Now,  what  I  said  or  meant  to  intimate  in  my  statement  is 
that  I  look  with  great  reluctance  upon  Congress  delegating  to  a  small 
commission  its  power  to  (what  in  effect  is  to)  legislate,  but  I  think 
the  Sherman  law,  still  standing,  with  its  penalties  as  they  are,  Con- 
gress could  appoint  a  commission  to  pass  upon  propositions  such  as 
you  have  just  suggested  and  could  authorize  the  commission  to  make 
a  declaration  as  to  the  innocuousness  of  such  corporation  with  the 
right  to  revoke  it  —  to  revoke  not  as  to  its  essential  constitution  but 
as  to  its  future  action. 

Senator  Cummins.   Precisely. 

Mr.  Stetson.  And  that  during  the  continuance  of  that  declaration 
unrevoked  the  Department  of  Justice  should  be  relieved  from  the 
necessity  of  prosecuting  any  such  corporation.  Thus  you  would  re- 
lieve the  corporation  from  the  danger  of  having  its  great  business  sud- 
denly broken  up  by  a  revocation  of  the  license,  and  would  leave  it 
to  justify  its  acts  under  the  law  before  the  court  in  the  proceeding 
brought  by  the  Department  of  Justice.  This  would  not  be  substi- 
tuting the  commission  for  the  court  or  for  the  Congress,  and  I  think, 
to  my  mind,  nothing  is  more  vital  than  to  avoid  an  unconstitutional 
delegation. 

Senator  Cummins.  I  think  I  understand  your  statement.  I  want 
to  pursue  it  just  a  little  bit  further.  When  such  commission  is  organ- 
ized, if  it  ever  shall  be,  it  will  of  course  be  bound  by  the  law  which 
prohibits  combinations  or  arrangements  in  restraint  of  trade.  Now, 
when  any  such  proposition  is  put  before  the  commission  for  the  pur- 
pose of  receiving  its  approval,  tl^.e  commission  will  be  governed  by 


6oo  EXCERPTS   FROM   TESTIMONY   BEFORE 

its  judgment  as  to  whether  such  a  proposition  if  carried  out  will  be 
in  restraint  of  trade.  Now,  can  you  help  the  committee  by  suggest- 
ing the  form  in  which  we  ought  to  put  the  authority  which  we  thus 
give  to  a  commission  of  that  character  so  that  it  could  exercise  that 
judgment  more  certainly  than  it  could  with  the  simple  direction  that 
it  must  not  be  in  restraint  of  trade? 

Mr.  Stetson.  I  purposely  avoided  the  phrase  "restraint  of  trade" 
and  I  used  the  word  "innocuous."  I  think  that  the  object  of  all  laws 
is  to  prevent  injury  to  the  public,  or,  as  Mr.  Jefferson  said,  "to  pre- 
vent people  from  injuring  each  other."  Therefore  in  answering  your 
question  —  I  would  not  undertake  to  advise  the  committee  —  but  in 
answering  your  question,  I  should  authorize  that  commission  upon 
investigation  to  issue  a  declaration  that  the  proposed  combination 
would  not  be  injurious  to  the  public  interests. 

Senator  Cummins.  Do  you  think  that  the  guide  or  standard  that 
we  would  give  the  commission,  if  we  were  to  employ  the  phrase  that 
you  have  just  stated,  would  be  sufficient  under  the  Constitution  to 
validate  its  acts? 

Mr.  Stetson.  I.  do,  because  it  is  not  a  judicial  question  that  I  am 
discussing.  The  law  stands,  and  we  have  got  now  an  interpretation 
of  the  law  —  that  the  law  forbids  any  restraint  of  trade,  the  term 
being  interpreted  either  "in  the  light  of  reason"  or  according  to  "the 
standard  of  reason,"  or,  perhaps  —  though  I  am  not  clear  on  this  — 
or  as  though  it  read  "undue  restraint  of  trade."  Now,  there  is  the 
law  as  it  stands  and  as  it  would  continue  to  stand.  All  that  I  am 
suggesting  is  with  respect  to  such  corporations  as  the  commission 
should  find  not  to  be  injurious  to  the  public.  The  Department  of 
Justice  should  be  relieved  from  proceeding  under  the  act. 

Now,  there  is  no  constitutional  question  involved  in  that. 

Senator  Cummins.  Suppose,  however,  we  were  to  say  to  this  com- 
mission that  if  any  such  proposition  were  submitted  to  it,  if  it  found 
that  the  powers  of  the  combination  or  corporations  so  proposed  could 
be  exercised  and  that  there  would  still  remain  the  opportunity  for 
healthful  and  reasonable  competition,  it  should  not  be  regarded  in 
restraint  of  trade? 

Mr.  Stetson.  I  would  like  that  far  better.  But  that  is  one  of  the 
things  I  did  not  consider  practicable.  If  it  be  open  to  me  so  to  speak, 
I  should  be  very  glad  to  see  such  a  provision  enacted  into  law. 

Senator  Cummins.  I  pass  now  to  another  branch  of  the  subject. 
It  has  been  suggested  before  us  many  times  that  a  practicable  way 
out  of  the  uncertainties  that  are  said  to  be  in  the  business  world,  if 
such  a  commission  were  organized  and  it  were  given  authority  to 
approve  or  disapprove  trade  agreements  which  had  for  their  chief 
purpose  the  fixing  of  prices,  either  directly  or  through  limitation  of 
production  or  division  of  territory,  or  in  any  other  way,  I  assume 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    60 1 

that  most  people  will  agree  that  such  an  agreement  now  is  unlawful 
because  it  is  in  restraint  of  trade.  Such  seems  to  be  the  trend  of 
judicial  as  well  as  popular  thought.  Now,  do  you  believe  that  a 
commission  ought  to  be  clothed  with  any  such  authority  ? 

Mr.  Stetson.  I  answered  your  first  question  by  saying  that  I  had 
no  practical  experience  with  reference  to  the  conduct  of  corporations 
after  they  are  launched.  I  never  had  anything  to  do  with  nor  have 
I  had  any  knowledge  of  the  existence  or  the  methods  of  conducting 
such  trade  agreements  as  you  have  suggested,  and  which,  unquestion- 
ably, I  should  consider  as  contrary  to  the  law  as  it  has  stood  since 
the  decision  in  the  Addyston  Pipe  case. 

Now,  I  have  been  much  impressed  by  the  communication  which 
Mr.  Henry  R.  Towne  addressed  to  your  committee  with  reference  to 
that  particular  subject.  I  was,  I  confess,  amazed  at  the  extensive 
prevalence  of  such  agreements,  notwithstanding  the  existence  of  the 
law  as  thus  interpreted ;  and  if,  as  I  said,  the  keynote  of  legislation 
is  to  prevent  injury  to  the  public,  it  would  seem  that  some  legislation 
is  required  to  meet  a  condition  so  extensive  as  indicated  by  Mr.  Towne. 

Senator  Cummins.  If  that  were  done,  would  it  not  inevitably  re- 
sult, in  operation,  in  the  Government  fixing  prices? 

Mr.  Stetson.  I  am  not  certain  of  that.  I  have  not  given  thought 
to  that  point.  As  I  say,  that  particular  feature  of  the  subject  is  so 
new  to  me  that  I  do  not  attach  very  much  importance  to  my  conclu- 
sions with  reference  to  it ;  but  so  far  as  I  have  been  able  to  reflect 
since  I  have  read  Mr.  Towne's  letter,  which  was  only  within  the  last 
few  days,  I  do  not  at  all  see  that  relief  for  such  agreement  necessarily 
involves  the  fixing  of  prices.  I  should  suppose  that  relief  might  be 
found  in  the  power  of  the  commission  to  denounce  the  agreement. 
That  is  why  I  said  to  make  and  to  revoke  a  declaration  as  to  whether 
or  not  an  agreement  —  not  an  organization  —  was  injurious  to  the 
public.  If  it  were  injurious  to  the  public,  I  would  terminate  the 
agreement. 

Senator  Cummins.  I  take  it  that  such  agreement  would  be  injuri- 
ous to  the  public  or  otherwise,  dependent  upon  the  reasonableness  of 
the  price. 

Mr.  Stetson.   That  may  be. 

Senator  Cummins.   At  least,  that  would  be  one  of  the  great  factors. 

Mr.  Stetson.  That  might  be  one  of  the  conditions.  Of  course,  it 
would  be  an  important  element. 

Senator  Cummins.  And  if  the  commission  believed  that  the  price 
established  by  any  such  arrangement  was  an  unreasonably  high  one, 
it,  of  course,  would  have  to  condemn  the  arrangement. 

Mr.  Stetson.  Well,  Senator  Cummins,  in  answer-  to  that,  I  must 
say  that  I  am  unable  to  come  to  the  recognition  of  the  wisdom  of  the 
Government  fixing  prices,  and  if  that  be  the  only  alternative,  it  is 


6o2  EXCERPTS   FROM   TESTIMONY   BEFORE       - 

my  present  impression  that  it  would  be  better  not  to  tolerate  the 
agreement. 


FROM   THE   TESTIMONY   OF  LOUIS   D.  BRANDEIS,   ESQ., 
ATTORNEY  AT  LAW,   BOSTON,   MASS.^ 


Senator  Cummins.  Mr.  Brandeis,  I  want  to  take  up  for  a  little 
while  the  proposal  that  has  been  suggested  for  licensing  corporations 
engaged  in  commerce  among  the  States  and  with  foreign  nations. 
So  far  as  this  inquiry  is  concerned,  I  assume  that  the  ideal  condition 
would  be  one  in  which  all  corporations  engaged  in  interstate  com- 
merce were  in  consonance,  so  far  as  organization  goes  and  in  respect 
to  their  practices  and  methods,  with  the  antitrust  law  and  any  amend- 
ment that  may  be  made  to  it.  That  is  the  condition  we  want  to  reach. 
The  Interstate  Commerce  Commission  stands  very  high  in  the  con- 
fidence of  the  people,  does  it  not  ? 

Mr.  Brandeis.   To-day;  yes,  sir. 

Senator  Cummins.  To-day.  It  is  conclusive  evidence  that  we  can 
establish  a  commission  so  independent  in  its  work,  so  thoroughly 
devoted  to  the  public  welfare,  that  its  service  will  be  wholly  in  the 
interests  of  the  people.     You  recognize  that? 

Mr.  Brandeis.  I  think  that  is  the  present  estimate  of  the  commis- 
sion. 

Senator  Cummins.  In  our  system  of  government  it  would  not  be 
impossible  to  establish  a  commission  composed  of  men  of  the  same 
high  character,  intelligence,  and  capacity  to  serve  the  people  with 
regard  to  general  industries? 

Mr.  Brandeis.  Certainly  not,  with  certain  limitations,  I  think.  If 
I  may  state  them  now  — 

Senator  Cummins.  You  may  state  them  a  little  later.  I  think  we 
will  come  to  that  point.  Now,  suppose  a  commission,  which  would 
have  to  be  of  the  same  character  generally,  is  established  for  the 
purpose  of  passing  on  the  question  originally  as  to  whether  a  given 
corporation  shall  be  permitted  to  engage  in  interstate  commerce ;  that 
commission  would  have  to  be  guided  and  directed  by  the  rules  which 
Congress  lays  down  for  its  procedure. 

I  call  your  attention  first  to  the  future,  not  how  we  shall  act  with 
respect  to  corporations  now  in  existence  but  corporations  hereafter 
organized.  Now,  if  such  corporation,  desiring  to  engage  in  inter- 
state commerce,  were  to  apply  to  the  commission  that  I  have  sup- 
•  1  Pp.  1 267-1 272. 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    603 

posed  to  be  established  for  the  privilege  of  so  doing,  we  could,  in  the 
first  place  require  the  commission  to  ascertain  whether  it  was  so  organ- 
ized in  form  and  had  such  potential  power  as  to  make  it  an  organiza- 
tion in  restraint  of  trade,  could  we  not  ? 

Mr.  Brandeis.   That  would  be  possible. 

Senator  Cummins.  And  in  the  same  way,  we  could  ascertain 
whether  a  corporation  organized  as  was  proposed,  by  reason  of  its 
power  or  extent  would  be  a  monopoly,  or  an  attempt  to  create  a 
monopoly,  under  the  second  section  of  the  antitrust  law,  could  we 
not? 

Mr.  Brandeis.   That  would  be  possible. 

Senator  Cummins.  Now,  do  you  not  believe  that  a  commission 
properly  organized  could  pass  on  questions  of  that  character  so  that 
the  people  of  the  country  would  be  better  protected  than  to  await 
the  final  decision  of  the  court  after  years  of  ligitation  ? 

Mr.  Brandeis.  I  am  not  certain.  Senator  Cummins,  that  I  under- 
stand your  question.  But  I  assume  that  it  applies  or  would  apply 
to  practically  all  corporations  that  desire  for  the  future  to  engage  in 
interstate  commerce. 

Senator  Cummins.  I  am  imagining  now  that  we  have  a  clean  sheet, 
and  are  simply  providing  against  the  future.  I  will  come  to  the 
other  in  a  moment. 

Mr.  Brandeis.  I  said  it  was  possible,  and  perhaps  I  might  state  — 
showing  you  more  clearly  what  I  have  in  mind  —  the  difficulties  of 
such  a  commission.  We  are  to-day  especially  to  be  congratulated  on 
the  character  of  the  Interstate  Commerce  Commission  and  on  their 
accomplishments.  Of  course,  we  have  got  to  remember  that  during 
a  large  part  of  the  24  years  of  the  organization  of  the  commission 
there  was,  for  one  reason  or  another,  not  that  satisfaction,  and  that  it 
took  a  very  large  number  of  years  and  a  great  deal  of  additional  per- 
fecting legislation  to  enable  the  commission  to  arrive  at  the  point 
where  they  could  and  did  satisfy  the  public  needs.  Now,  the  great 
difficulty  which  it  seems  to  me  to-day  the  commission  still  labors 
under  is  the  multitude  of  questions  and  the  onerous  character  of  the 
duties  which  it  is  called  upon  to  perform.  They  have  to  deal  with 
236,000  or  240,000  miles  of  railroad,  and  the  questions  which  neces- 
sarily arise  in  connection  with  them  are  numerous.  We  have  had  the 
situation  with  regard  to  some  of  the  most  important  cases,  for  in- 
stance, like  the  Intermountain  case.  Now,  wholly  aside  from  the 
recent  interference  with  its  action  by  the  Commerce  Court,  we  have 
there  had  a  controversy  in  which  the  endeavor  to  adjust  what  was  a 
proper  rate  has  extended  over  a  large  part  of  a  generation. 

We  have  had  all  these  difficulties,  although  the  Interstate  Com- 
merce Commission  deals  only  with  transportation,  and  railroad  trans- 
portation is  a  business  which  is  practically  uniform  in  its  problems 


6o4  EXCERPTS    FROM   TESTIMONY   BEFORE 

and  in  which  the  problems  are  largely  the  same  yesterday,  to-day, 
and  to-morrow.  Of  course,  circumstances  differ;  but  after  all,  the 
problems  of  railroad  rates,  the  problems  of  discrimination  are  largely 
the  same  problems  throughout  the  country.  When  we  are  dealing 
with  rates,  one  of  the  commonest  methods  of  decision  arrived  at 
by  the  commission  is  by  comparison  —  a  comparison  of  the  service 
and  of  the  charges  for  a  similar  service  on  the  same  or  on  another 
railroad. 

When  you  pass  from  the  realm  of  transportation  to  the  realm  of 
industry  the  problems,  instead  of  being  uniform,  are  widely  varying, 
and  instead  of  being  practically  stable,  they  are  ever  changing. 

The  difficulty  that  I  see,  or  one  of  the  difficulties  which  I  see,  in 
appointing  at  this  time  a  commission  with  the  power  of  granting 
or  denying  permission  to  engage  in  interstate  business  rests  in  the 
fact  that  the  commission  would  be  burdened  with  the  decision  of 
questions  so  numerous  that  not  only  one  commision  but  many  com- 
missions would  be  unable  to  compass  the  work. 

Take  the  work  of  the  Bureau  of  Corporations  on  these  few  prob- 
lems —  the  Beef,  Tobacco,  Steel,  and  Oil  Trusts.  The  inquiry  neces- 
sary to  determine  facts  in  regard  to  the  existing  business  has  occupied 
six  or  seven  years. 

You  propose,  in  the  first  instance,  at  all  events,  to  deal  only  with 
the  future ;  but  an  investigation  —  a  very  extensive  investigation  — 
would  have  to  be  made  before  any  commission  could  justly  say  that 
a  license  should  be  granted  or  denied.  An  investigation  of  that  kind 
ought  to  permit  the  participation  of  those  directly  interested,  either 
on  behalf  of  the  community  or  competitors,  like  at  hearings  before 
the  Interstate  Commerce  Commission.  That  would  tend  to  safety, 
but  also  take  more  time  of  the  commission.  We  should  go  exceed- 
ingly slow  in  the  development  of  any  plan  of  control  by  commission. 
The  first  step  ought  to  be  investigation  only,  to  enlarge  very  much 
the  realm  and  the  scope  of  the  powers  of  investigation. 

At  present  I  should  feel  that  a  decision,  even  though  a  tentative 
decision  by  such  a  commission,  resulting  in  the  granting  or  denial 
of  a  license  might  lead  us  into  many  erroneous  paths. 

Senator  Cummins.  It  is  of  course  true  that  the  work  of  the  com- 
mission would,  in  the  first  place,  be  necessarily  confined  to  the  largest 
corporations.  There  would  have  to  be  a  limit  of  that  kind  in  order 
to  bring  the  work  within  the  scope  of  any  commission  that  might  be 
created.  But  I  put  to  you  now  this  proposition :  Suppose  that  in 
1901  —  when  Mr.  Morgan  and  his  associates  proposed  to  organize 
the  United  States  Steel  Corporation  with  its  capitalization  of 
$i,40D,ooo,ooo,  and  with  its  absorption  of  plants,  which  were  known 
at  the  time  to  do  more  than  one-half  of  all  the  business  of  the  United 
States  in  that  field  —  now,  if  such  a  corporation,  or  the  proposers  of 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE     605 

it,  had  applied  to  the  commission  that  I  have  indicated,  it  would  not 
involve  the  examination  of  years  of  practice  and  of  methods  to  enable 
the  commission  to  reach  a  conclusion  as  to  whether  a  corporation  of 
that  magnitude,  drawing  to  itself  that  degree  of  the  business,  even  if 
conducted  in  accordance  with  what  we  understand  to  be  fair  business 
practices,  was  or  was  not  a  menace  to  society,  was  or  was  not  a  re- 
straint of  trade,  or  was  or  was  not  so  near  an  approach  to  monopoly 
that  it  was  forbidden  by  the  second  section  of  the  antitrust  act.  Now, 
there  would  not  be  any  difficulty  in  a  commission  reaching  a  conclusion 
upon  such  questions,  would  there? 

Mr.  Brandeis.  I  think  there  might  be  considerably  more  difficulty. 
Of  course,  the  investigation  would  have  to  be  elaborate  — 

Senator  Cummins.  I  do  not  mean  now  that  the  question  that  they 
would  be  called  upon  to  decide  would  not  be  difficult,  but  I  mean  that 
there  would  be  no  great,  long  investigation  required  in  order  to  reach 
a  conclusion. 

Mr.  Brandeis.  Of  course  not  long,  as  compared  with  what  was 
necessary  in  the  investigation  of  the  Standard  Oil  and  the  Tobacco 
Co.,  but  I  think  there  might  be  quite  a  long  inquiry  in  all  of  these 
cases  where  there  was  a  reasonable  doubt  as  to  whether  the  combina- 
tion would  be  permissible  or  not  permissible.  That  is,  you  never 
could  decide  a  question,  similar  to  those  questions  which  Senator 
Newlands  asked  yesterday,  as  to  whether  a  particular  combination 
was  or  was  not  obnoxious  to  the  law,  without  a  careful  inquiry  into 
the  whole  state  of  the  trade.  Such  an  inquiry  would  necessarily 
occupy  considerable  time.  It  would  have  to  be  of  considerable  scope. 
The  moment  you  get  to  a  point  where  men  may  reasonably  differ  — 
and  those  are  the  only  cases  really  that  ought  ever  to  come  before  that 
court  —  wherever  you  reach  a  point  where  men  may  reasonably  dififer, 
you  have  the  possibilities  of  a  very  considerable  inquiry. 

I  can  well  conceive  this.  Senator :  If  this  commission  is,  as  I  be- 
lieve it  should  be,  active  in  securing  the  information  in  regard  to 
every  branch  of  trade,  even  before  a  crucial  question  arises  —  I  mean 
as  it  will  gradually  acquire  a  very  large  volume  of  information,  daily 
added  to,  in  respect  to  each  of  the  important  industries  of  the 
country  —  I  can  well  imagine  at  a  later  time  it  will  be  a  comparatively 
simple  thing  for  the  commission,  with  that  great  mass  of  informa- 
tion at  hand,  to  pass  quickly  upon  a  question  as  to  whether  a  given 
combination  is  legal  or  illegal.  But  at  the  present  day,  in  our  igno- 
rance, with  our  lack  of  authentic  information  with  regard  to  practically 
every  branch  of  industry  except  those  few  which  have  been  investi- 
gated by  the  Bureau  of  Corporations,  I  should  be  afraid  that  it  should 
be  entering  upon  a  field  beset  with  difficulty  to  give  a  commission 
power  to  grant  or  deny  licenses. 

Senator  Cummins.     You  have  advocated  here  the  passage  of  a  law 


6o6  EXCERPTS   FROM   TESTIMONY   BEFORE 

which  makes  forty  per  cent  of  the  business,  I  think,  prima  facie  evi- 
dence of  a  \dolation  of  the  antitrust  statute  ? 

Mr.  Brandeis.    Presumptive;  yes;  in  case  of  a  combination. 

Senator  Cummins.  Now,  if  we  can  arrive,  with  the  information 
we  have  now,  generally  speaking,  at  the  conclusion  that  any  consoli- 
dation or  combination  that  proposes  to  take  in  forty  per  cent  of  the 
business  is  against  public  policy  or  against  the  statute,  there  certainly 
would  not  be  very  much  difficulty  in  the  commission  arriving  at  a 
similar  conclusion,  either  increasing  that  percentage  or  diminishing  it, 
as  the  case  may  be.  We  have  enough  general  information  to  carry  us 
to  some  conclusions  upon  this  subject  of  industry. 

Mr.  Brandeis.  Well,  I  think  the  volume  of  the  accessible  informa- 
tion is  extremely  small.  For  instance,  in  connection  with  the  inves- 
tigation which  I  was  obliged  to  make  in  the  Tobacco  Trust  case,  I 
endeavored  to  ascertain  with  some  exactitude  the  statutes  of  the  inde- 
pendents. I  had  the  assistance  of  some  of  the  ablest  and  best  versed 
of  all  of  the  independents  who  had  given  some  thought  not  only  to 
their  own  business  but  the  business  of  others. 

Yet  there  was  an  extraordinary  lack  of  knowledge  on  their  part. 
None  of  those  men  were  able  to  give  fully  the  kind  of  information 
in  respect  to  their  competition  —  other  than  the  trust  —  which  you 
and  I  would  wish  to  act  upon  in  any  important  affair  of  life.  I  dare 
say  if  I  had  had  open  for  me  the  avenues  of  the  Bureau  of  Corpora- 
tions —  which  must  have  investigated  to  a  certain  extent  also  the 
independents  as  well  as  the  trusts  —  I  could  have  gotten  more  infor- 
mation. But  whatever  information  the  bureau  had  was  the  result  of 
a  very  wide  inquiry,  and  I  think  if  to-day  you  would  undertake  in 
any  branch  of  industry  to  ascertain  accurately  the  trade  facts  you 
would  find  that  the  inquiry  would  involve  a  considerable  investiga- 
tion the  moment  you  reached  what  was  termed  the  other  day  the 
"twilight  zone." 

Senator  Cummins.  I  have  no  doubt  of  that,  but  you,  as  it  seems 
to  me,  are  not  discriminating  as  I  do  at  least,  between  the  original 
organization  and  its  capacity  for  good  or  evil,  and  the  things  which 
the  corporation  does  in  the  course  of  its  business.  The  latter,  of 
course,  could  not  be  determined  in  advance.  I  will  suggest  another 
illustration.  Suppose  that  in  1907 — ^I  believe  that  was  when  the 
United  States  Steel  Corporation  proposed  to  take  in  the  Tennessee 
Coal  &  Iron  Co.  —  there  had  been  such  a  commission  and  that  it 
became  necessary  for  that  corporation  before  it  acquired  that  property 
to  apply  to  a  commission  such  as  I  have  suggested.  Now,  entirely 
apart  from  the  merit  of  the  proposition,  without  attempting  to  decide 
whether  the  consolidation  or  purchase  was  lawful  or  unlawful,  or  wise 
or  unwise,  there  would  not  be  very  much  difficulty,  aside  from  the 
character  of  the  question  itself,  on  the  part  of  the  commission  in 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    607 

deciding  whether  that  additional  power,  or  that  additional  part  of 
the  business  to  be  so  taken  in,  would  be  a  violation  of  the  antitrust 
law,  would  there  ? 

Mr.  Brandeis.  Well,  I  can  conceive  that  in  some  such  instances 
the  problem  would  be  readily  solved  ;  that  is,  the  facts  would  be  such 
that  men  might  not  reasonably  differ  about  them.  But,  on  the  other 
hand,  I  think  we  have  found,  in  connection  with  every  trust  problem 
as  it  appeared  before  the  commission  and  before  the  court,  an  ex- 
traordinary difference  —  perhaps  not  extraordinary,  perhaps  a  natural 
difference  —  as  to  mere  matters  of  fact  between  the  combination  and 
the  representatives  of  the  people.  I  entirely  sympathize  with  your 
purpose  to  remedy  what  I  deem  to  be  a  defect  in  our  administrative 
system,  under  which  we  allow  to  be  created  an  organization  which 
from  its  nature  will  probably  defeat  the  very  purposes  of  the  law. 
I  thoroughly  sympathize  with  your  purpose,  but  I  see  a  practical 
difficulty  of  applying  the  full  remedy  at  once. 

Senator  Cummins.  Of  course  there  are  practical  difficulties,  but  in 
the  instance  I  have  just  put  to  you,  the  Government  would  have  —  if 
we  had  a  commission  on  the  one  side  and  this  business  on  the  other  — 
two  alternatives  in  order  to  prevent  the  accomplishment  of  the  pur- 
pose of  the  United  States  Steel  Corporation  taking  in  the  Tennessee 
Coal  &  Iron  Co.  We  would  have  the  injunctive  or  inquiring  process 
of  the  court  on  the  one  hand  and  we  would  have  on  the  other  hand, 
or  might  have  on  the  other  hand,  the  immediate  interposition  of  the 
commission.  Now  it  takes  us  years  to  ascertain  through  the  courts 
whether  that  can  or  cannot  be  lawfully  done,  and  in  the  meanwhile 
it  is  done ;  and  if  there  are  evil  effects  from  it  the  people  must  suffer 
during  all  these  years  those  effects ;  and  their  injury,  if  they  receive 
one,  can  never  be  repaired  no  matter  what  the  court  may  ultimately 
do ;  whereas  if  the  commission  could  interpose  the  same  effectual 
forces  in  the  beginning  against  doing  the  thing  where  the  courts  in- 
terpose years  after  it  is  done,  it  seems  to  me  that  if  the  commission 
acts  as  wisely  and  as  patriotically  as  the  courts  do,  that  we  would  be 
better  off. 

Mr.  Brandeis.  I  think  if  the  machinery  can  be  devised  that  will 
accomplish  what  you  suggest  with  certainty  and  dispatch,  it  cer- 
tainly would  be  desirable.  My  doubt  comes  as  to  the  possibility  of 
providing  it.  It  seems  to  me  there  is  another  alternative  in  addition 
to  the  two  you  suggest.  It  is  this,  and  it  is  the  very  alternative  and 
the  very  power  which  is  operative  in  the  ordinary  affairs  of  life :  You 
talk  about  the  doubt  as  to  what  you  can  and  what  you  cannot  do. 
Is  there  not,  in  large  part,  in  the  realm  of  human  activities,  the  very 
gravest  doubt  as  to  what  a  man  can  and  what  he  cannot  do  ?  We,  as 
lawyers,  have  frequent  occasion  to  advise  our  clients  that  there  is  a 
grave  doubt  as  to  what  they  can  do  ;  a  particular  thing.     Our  clients 


6o8  EXCERPTS   FROM   TESTIMONY   BEFORE 

under  those  circumstances  ordinarily  refrain  from  doing  the  thing. 
They  keep  off ;  they  keep  back  from  the  precipice.  The  law  is  auto- 
matically enforced  by  its  deterrent  effect. 

I  believe  that  a  very  large  part  of  the  transgressions  of  the  anti- 
trust law  have  resulted  from  the  belief  in  the  community  that  the 
Government,  and  perhaps  the  American  people  themselves,  were  not 
sincere  in  the  desire  to  prevent  monopoly  and  to  insure  competition. 

The  moment  Congress,  with  the  approval  of  the  American  people, 
give  the  assurance  that  the  law  will  be  enforced,  a  very  large  part  of 
all  difficulties  attending  it  will  vanish.  There  will  be  no  necessity  for 
these  long  proceedings.  Prosecutions  will  occur  occasionally,  but  there 
will  not  be  many  of  them. 


STATEMENT    OF     SAMUEL    GOMPERS,    PRESIDENT    OF 

THE   AMERICAN   FEDERATION   OF   LABOR,   NEW 

YORK,    N.Y.i 


Mr.  Chairman  and  gentlemen,  of  course  you  understand  that,  as 
a  representative  of  an  organization  of  working  people,  and  assuming 
to  speak  in  the  interests  of  all  the  working  people,  we  have,  in  the 
Sherman  antitrust  law  the  additional  interest  as  it  has  been  made  to 
apply  to  the  working  people  as  such  and  though  we  may  have  some 
views  upon  the  trust  law  in  its  general  aspect,  we  have  particular 
views  as  that  law  has  been  made  to  affect  the  working  people,  and 
made  to  affect  the  working  people  by  reason  of  the  interpretation 
placed  upon  that  law  by  the  courts  of  the  United  States  and  finally 
adjudged  by  the  Supreme  Court  of  the  United  States. 


We  are  interested  in  securing  relief  from  the  interpretation  placed 
upon  the  Sherman  antitrust  law  by  the  Supreme  Court  of  the  United 
States,  and  the  restoration  of  the  working  people,  either  as  individuals 
or  in  association,  to  their  status  before  the  enactment  of  the  law  as 
interpreted  by  the  court.  In  so  far  as  the  Sherman  antitrust  law  is 
concerned,  as  now  held  as  the  law  of  the  land,  voluntary  associations 
of  the  working  people  are  regarded  as  combinations  coming  under  the 
provisions  of  the  antitrust  law  and  amendable  to  its  civil  and  penal 
provisions. 

******* 
1  Pp.  1727-1765. 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    609 

The  convention  of  the  American  Federation  of  Labor  at  Atlanta, 
having  these  matters  under  consideration,  referred  them  to  a  com- 
mittee, which,  after  reciting  the  complaints  from  which  labor  suffers, 
made  this  recommendation  to  the  convention,  which  was  unanimously 
adopted : 

We  recommend  that  this  convention  authorize  and  direct  the  executive 
council  to  urge  the  President  of  the  United  States  to  recommend  in  his 
forthcoming  message  to  Congress  the  amendment  of  the  Sherman  antitrust 
law  upon  the  lines  as  outlined  in  the  Wilson  bill  to  amend  the  Sherman  anti- 
trust law. 

That  the  executive  council  be  and  it  is  hereby  ordered,  either  as  a  body 
or  by  the  selection  of  a  committee  thereof,  to  obtain  an  interview  with  the 
President  in  furtherance  of  the  purpose  of  this  report. 

The  executive  council  is  hereby  furthermore  authorized  and  directed  to 
take  such  further  action,  as  its  judgment  may  warrant,  to  secure  the  enact- 
ment of  such  legislation  at  the  forthcoming  session  of  Congress  as  shall 
secure  the  legal  status  of  the  organized  movement  of  the  wage  workers  for 
the  prevention  of  unjust  discrimination  in  the  exercise  of  their  natural, 
normal,  and  constitutional  rights  through  their  voluntary  associations,  and 
the  executive  council  is  further  authorized  and  directed  that  in  the  event 
of  a  failure  on  the  part  of  Congress  to  enact  the  legislation  which  we  herein 
seek  at  the  hands  of  Congress  and  the  President,  to  take  such  action  as  in 
its  judgment  the  situation  may  warrant  in  the  presidential  and  congressional 
elections  of  1912.' 


The  case  in  point  which  resulted  in  the  decision  was  the  case  of  a 
strike  of  a  number  of  workmen  hatters,  located  in  Danbury,  Conn. 
They  had  failed  to  reach  an  agreement  with  an  employer  to  adopt  the 
trade  rules  in  regard  to  wages,  hours,  conditions  of  employment  —  the 
rules  and  wages  and  hours  prevailing  to  the  extent  of  seven-eighths  of 
the  trade  throughout  the  country  of  the  workingmen.  It  meant 
either  securing  from  that  employer  an  agreement  to  conform  to  the 
wages  and  rules  and  standards  largely  prevailing  in  the  trade,  or 
encountering  the  antagonism  of  the  employers  who  had  already 
adopted  those  wages  and  rules  by  their  insisting  upon  a  lower  stand- 
ard and  conditions  of  employment.  The  strike  ensued  in  order  to 
persuade  the  employer  to  come  to  this  general  trade  agreement.  The 
organization  of  hatters  sent  out  a  few  of  its  men  to  several  parts  of 
the  country  to  solicit  the  cooperation  of  dealers  with  this  Connecti- 
cut employer  —  to  write  letters  to  him  to  persuade  him  to  come  into 
this  general  agreement ;  and  upon  the  inability  of  those  dealers  to 
accomplish  this  with  this  employer,  to  persuade  these  dealers  not  to 
make  their  purchases  of  this  manufacturer  of  hats. 

Workmen  were  appealed  to  to  wait  upon  dealeis  to  persuade  them 
to  follow  this  course,  and  the  employer,  through  the  instrumentality 


6io  EXCERPTS   FROM   TESTIMONY   BEFORE 

of  an  association  of  one  or  two  attorneys,  with  others,  perhaps, 
brought  suit  in  the  name  of  this  employer  under  the  provisions  of 
the  Sherman  antitrust  law.  The  Federal  judge,  sitting  in  the  circuit 
court  of  Connecticut,  dismissed  the  suit,  assigning  the  reason  that 
such  an  association  does  not  come  under  the  provisions  of  the  Sher- 
man antitrust  law. 

The  case  was  taken  to  the  circuit  court  of  appeals,  and  by  consent 
that  court  certified  a  series  of  questions  to  the  Supreme  Court  of  the 
United  States  to  have  the  court  pass  upon  the  question  whether 
such  a  suit  could  be  maintained  under  the  provisions  of  the  Sherman 
antitrust  law. 

The  Supreme  Court  answered  the  questions  in  the  affirmative,  and 
remanded  the  case  for  trial.  I  should  say  that  the  employer,  through 
his  attorneys,  quoted  sections  i  and  2  in  the  complaint  and  petition. 
The  Supreme  Court  included  a  third  —  sections  i,  2,  and  7. 

At  the  trial  the  jury  awarded  the  employer  threefold  damages, 
amounting  to  more  than  $222,000,  against  nearly  200  workingmen, 
many  of  whom  had  not  known  about  any  of  the  transactions  at  all  of 
the  union  of  workmen.  For  information,  not  necessarily  for  the  argu- 
ment, I  might  say  that  the  case  was  taken  to  the  circuit  court  of 
appeals  by  the  representatives  of  the  hatters,  and  the  court  reversed 
the  verdict  and  award,  principally  on  the  ground  that  at  the  trial 
the  court  had  taken  from  the  jury  the  questions  of  fact  which  were 
involved  in  the  trial  and  instructed  the  jury  to  find  for  the  plaintiff, 
the  employer,  the  judge  leaving  to  the  jury  alone  to  determine  the 
amount  of  the  award.  .  .  . 

:(:  41  4c  %  %  ^  4c 

Senator  Cummins.  Your  view  is  that  the  antitrust  law,  which  was 
intended  to  prevent  restraints  of  trade  and  monopolies,  ought  not  to 
apply  at  all  to  labor  organizations? 

Mr.  Gompers.   Yes,  sir.  .  .  . 

4t  4<  4c  4c  4<  4c  Nc 

Senator  Cummins.  I  take  it  you  do  not  object  to  responsibility 
under  the  law  for  an  unlawful  act  in  some  form  or  other? 

Mr.  Gompers.    Certainly  not. 

Senator  Cuminhns.  That  is,  every  man,  whether  alone  or  whether 
in  association  with  others,  if  he  commits  a  wrong,  ought  to  respond 
for  that  act  either  to  the  public  in  a  criminal  prosecution  or  to  the 
person  who  was  injured  by  his  unlawful  act? 

Mr.  Gompers.   Unquestionably. 

Senator  Cummins.  That  is  fundamental,  and  that  leads  me  to  a 
little  further  inquiry  of  you  upon  a  subject  a  little  more  fundamental 
even  than  the  antitrust  law.  You  are  familiar  with  what  is  known 
as  the  Debs  case? 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    6ii 

Mr.  Gompers.   Fairly  well,  sir. 

Senator  Cummins.  There  the  complaint  was,  as  I  remember,  that 
certain  persons  had  forcibly,  physically  restrained  the  instrumentali- 
ties of  commerce ;  that  is,  prevented  commerce  from  being  carried 
on.  Now,  entirely  apart  from  the  law  through  which  it  would  be 
worked  out,  do  you  think  that  there  ought  to  be  a  prohibition  against 
acts  of  that  sort  ? 

Mr.  Gompers.   There  are,  without  the  Sherman  antitrust  law. 

Senator  Cummins.  Of  course  you  think  there  ought  to  be  pro- 
hibitions against  such  acts? 

Mr.  Gompers.  Unquestionably ;  any  acts  which  in  themselves  are 
unlawful. 

Senator  Cummins.  But  they  ought  not  to  be  grouped  with  the 
restraints  of  trade  and  commerce  and  monopolies  that  are  dealt  with 
in  the  antitrust  law? 

Mr.  Gompers.  Undoubtedly.  I  say  that  the  early  conception  of 
the  association  of  workmen  to  discuss,  much  less  to  decide  upon,  the 
relation  of  themselves  to  their  employers  was  not  only  a  conspiracy 
to  "rob  their  employers  of  their  labor,"  but  a  conspiracy  punishable 
by  imprisonment  and  by  death.  It  was  I  think  in  1S25  when  the 
British  Parliament  passed  its  first  act  upon  this  subject,  and  which 
finally  resulted  in  a  later  act  that  declared  that  the  combinations  of 
working  people,  having  for  their  object  the  regulation  of  wages,  hours, 
and  conditions  of  employment,  shall  not  be  construed  to  be  conspira- 
cies or  in  restraint  of  trade. 

Senator  Cummins.  That  is  still  the  law,  I  take  it.  There  is  no 
possibility  of  any  interpretation  of  the  antitrust  law  that  would  bring 
such  meetings  or  such  combinations  into  conflict  with  the  law. 


.  .  .  How  far  do  you  believe,  as  a  citizen  —  and  you  are  speaking 
in  that  capacity  —  such  interference  ought  to  be  permitted,  whether 
under  this  law  or  any  other? 

Mr.  Gompers.  As  a  legal  right,  I  hold  that  it  has  no  limitations.  I 
hold  that  in  the  case  in  point,  the  Hatters'  case,  no  man  has  the  right 
to  use  force  or  violence,  but  I  hold  that  a  man  has  the  right  to  do 
what  he  has  a  lawful  right  to  do,  and  I  hold  that  he  may  even  threaten 
to  do  that  which  he  has  a  lawful  right  to  do.  I  doubt  the  courtesy 
involved  in  a  threat.  I  am  of  the  opinion  that  it  is  not  contributory 
to  very  good  feeling.  On  the  contrary,  it  is  likely  to  jar,  and  per- 
haps one  of  the  reasons  why  I  do  not  threaten  is  because  I  prefer  to 
secure  that  which  I  believe  is  right  to  be  secured  without  threats ; 
but  as  a  legal  proposition,  no  man  has  any  proprietary  rights  in  my 
patronage  or  the  patronage  of  any  one.  It  is  mine  to  give  or  to  with- 
hold.    I  have  the  right  to  give  it  or  withhold  it  or  bestow  it  upon 


6i2  EXCERPTS   FROM   TESTIMONY   BEFORE 

another  for  any  reason,  good  or  bad,  or  for  no  reason  at  all ;  and  if  I 
may  do  that,  and  it  is  lawful,  it  cannot  be  unlawful  for  two  or  more 
to  do  that  thing,  and  whether  the  reason  be  good,  bad,  or  indifferent, 
or  no  reason  at  all.  It  is  not  a  question  of  ethics,  I  take  it,  that  we 
are  discussing.     I  take  it  as  an  inherent  legal  right. 

Senator  Cummins.  As  I  view  it,  Mr.  Gompers,  it  is  largely  a  ques- 
tion of  ethics,  inasmuch  as  it  is  a  lawmaking  body,  and  the  question 
with  us  is  always  what  ought  the  law  to  be,  not  what  it  is  —  except  as 
it  may  guide  us  in  changes  that  are  proposed.  But,  viewed  from  the 
social  or  sociological  standpoint,  it  is  your  opinion,  I  take  it,  that  the 
efforts  —  associated  efforts  —  of  the  hatters  to  divert  trade  from  the 
employer  with  whom  a  part  of  them  had  difhculty,  was  an  ethical 
effort ;  that  is,  such  an  effort  as  men  in  a  country  like  ours  ought  to 
have  a  right  to  undertake? 

Mr.  Gompers.  I  do.  The  motive,  after  all,  is  the  thing,  in  most 
instances,  and  the  motive  attributed  to  us  was  the  destruction  of  this 
man's  business,  the  diversion  of  his  business.  As  a  matter  of  fact, 
the  motive  was  to  bring  about  contractual  relations  of  mutual  advan- 
tage and  of  general  advantage  and  of  social  advantage. 

Senator  Cummins.  I  am  not  entering  upon  the  merits  of  the  thing 
or  things  demanded  by  the  hatters.  I  am  trying  to  get  your  idea  as 
to  what  instrumentahties,  if  you  please,  they  ought  to  be  permitted 
to  employ  in  order  to  accomplish  their  purpose.  What  they  wanted 
was  an  agreement  with  their  employer  which  would  insure  to  them 
better  wages  and  better  conditions  and  improve  in  every  way  their 
place  in  the  social  structure.  Now,  it  is  your  opinion  that  in  order 
to  make  it  advantageous  to  the  employer  to  enter  into  the  agreement, 
that  it  was  legitimate  and  fair  that  all  the  hatters  there  and  else- 
where should  use  their  influence  with  those  who  buy  hats  to  take 
away  the  trade  from  this  particular  employer  and  turn  it  into  other 
channels.     That  is  the  foundation  of  it  all,  is  it  not? 

Mr.  Gompers.  Yes,  sir. 


Senator  Cummins.  I  was  about  to  ask  you  whether  you  believed 
that  that  combination  —  for  there  may  be  good  combinations  and 
bad  combinations  unquestionably  —  was  in  restraint  of  trade  ? 

Mr.  Gompers.    Not  such  as  is  contemplated  by  the  law. 

Senator  Cummins.  Do  you  believe  that  because  you  think  the  law 
did  not  intend  to  include  such  associations  within  its  scope,  or  because 
you  believe  that  if  an  association  which  was  admittedly  within  its 
scope  were  to  employ  similar  means,  it  would  not  be  a  restraint  of 
trade  ? 

Mr.  Gompers.  Not  in  the  sociological  sense ;  not  in  the  sense  in 
which  restraint  of  trade  is  generally  understood.     I  take  it,  of  course, 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    613 

that  in  so  far  as  the  Sherman  antitrust  law  is  concerned,  it  might 
just  as  well  be  in  either  direct  or  indirect  terms  as  the  law  is  now  in- 
terpreted by  the  Supreme  Court,  because  that  is  the  construction 
placed  upon  the  statute  by  the  Supreme  Court. 

Mr.  Gompers.  What  I  intended  to  say  was  that,  since  the  Supreme 
Court  has  interpreted  the  Sherman  antitrust  law  so  that  the  labor 
organizations  come  under  its  provisions,  in  regard  to  restraints  of 
trade,  for  all  purposes  the  law  contains  that  provision  in  afifirmative 
terms.  Now,  whether  it  is  there  in  direct  affirmative  terms  or  by 
the  interpretation  of  the  Supreme  Court,  that  construction  being 
placed  upon  it  as  if  it  does  contain  these  words,  we  would  in  any 
event  then  as  now  come  before  you  and  ask  that  they  be  excluded 
from  it. 

Senator  Cummins.  I  think  the  world  generally  recognizes  that  we 
must  put  some  restriction  upon  freedom  of  combination  or  associa- 
tion along  the  capitalistic  side.  You  would  not  advocate  for  them 
absolute  freedom  to  do  as  they  please,  of  course  ? 

Mr.  Gompers.  While  that  is  true,  sir,  it  must  be  borne  in  mind 
that  a  combination  of  capitalists  is  to  deal  with  material  things  — 
with  products  of  labor,  with  the  products  of  the  ground.  The  workers 
in  association  deal  with  personal  activities,  and  that  which  is  in  vio- 
lation of  life  and  property  and  peace  is  provided  by  the  law,  because 
these  acts  are  specified  as  being  illegal.  There  is  quite  a  differentia- 
tion between  the  activities  of  the  workers  —  of  the  working  people  — 
to  protect  their  persons,  their  bodies,  their  personal,  physical  safety 
and  welfare,  and  the  activities  of  capitalists  dealing  with  the  products 
of  labor  —  material  things. 

Senator  Cummins.  I  recognize  a  very  great  difference  ;  and,  so  far 
as  I  am  concerned,  as  I  have  stated  many  times,  I  am  in  favor  of 
taking  out  the  organization  of  workingmen  from  the  antitrust  law. 
I  do  not  think  it  was  ever  rightly  in.  But  taking  it  out,  it  will  then 
become  necessary  for  us  to  consider  whether  a  code  of  laws  should 
be  prescribed  for  these  organizations  of  working  people,  and  it  was 
with  reference  to  what  that  code  should  be  that  I  asked  you  the 
questions  a  few  moments  ago.  You  have  said  that  in  your  opinion 
—  and  you  have  given  your  reasons  for  it  —  the  law  ought  not  to 
make  unlawful  the  combined  or  associated  effort  of  men  to  withdraw 
patronage  from  one  who  has  offended,  or  who  has  refused  to  enter  into 
an  ag'"eement  respecting  wages  and  conditions  of  labor.  Do  you  rec- 
ognize any  difference  in  the  law  or  in  morals  —  because  one  ought  to 
be  embodied  in  the  other  —  between  the  effort  of  an  individual  to 
accomplish  this  purpose  as  an  individual  and  the  effort  of  an  associa- 
tion of  men  to  accomplish  the  purpose? 


6i4  EXCERPTS   FROM   TESTIMONY   BEFORE 

Mr.  Gompers.  I  see  no  difference  so  long  as  collectively  they  exer- 
cise the  rights  to  which  each  individual  is  entitled. 

Senator  Cummins.  There  is  a  very  great  difference  in  the  effect, 
is  there  not? 

Mr.  Gompers.  Unquestionably ;  otherwise,  there  would  be  no 
sense  in  acting  collectively. 


STATEMENT  OF  JAMES  A.   EMERY,  GENERAL  COUNSEL, 

NATIONAL   ASSOCIATION   OF    MANUFACTURERS,   OF 

NEW  YORK   CITYi 

Mr.  Emery.  Mr.  Chairman  and  gentlemen  of  the  committee,  I  am 
general  counsel  for,  I  believe,  the  largest  single  body  of  organized 
manufacturers  in  the  world,  representing  employers  of  approximately 
2,000,000  men.  I  am  also  counsel  for  a  large  number,  very  nearly 
three  hundred  commercial  and  industrial  organizations  who  are  keenly 
interested  in  the  operation  of  the  Sherman  Antitrust  Act.  They  have 
for  years  followed  its  interpretation  and  enforcement  and  every  proposal 
to  amend  it  with  the  very  greatest  interest,  and  they  have  regarded  as 
a  matter  of  personal  concern  its  application  to  combinations  of  capital 
and  labor. 

I  think  I  can  say  with  accuracy  that  the  great  body  of  business  men 
whom  I  represent  do  not  join  in  the  bitter  onslaught  upon  the  act  so 
common  during  the  past  two  years.  I  do  not  mean  to  deny  by  that 
remark  that  I  have  not  known  many  of  those  whom  I  have  the  honor 
to  represent  at  times  anxious  and  in  sincere  doubt  as  to  whether  or 
not  the  act  did  not  so  apply  to  business  combinations  of  which  they 
were  a  part  as  to  forbid  legitimate  and  necessary  agreements,  but  I 
have  learned  from  personal  experience  that  some  business  men  hold 
conceptions  of  the  application  and  scope  of  the  Sherman  Act  to  their 
own  operations  as  erroneous  as  those  commonly  expressed  and  taught 
by  leaders  of  labor  organizations  to  their  followers. 

I  think  I  can  say  with  entire  justice  that  the  manufacturers'  organi- 
zations, as  a  body,  would  feel  it  a  very  great  calamity  if  the  act  were 
so  amended  as  to  either  invalidate  it  or  destroy  its  efficiency  as  a  pro- 
tection against  injurious  combinations  of  capital  or  combinations  of 
labor,  interrupting  the  free  flow  of  trade  and  menacing  the  liberty  of 
the  trader  either  by  lawless,  economic,  or  physical  force. 

My  attention  has  been  especially  directed  to  a  recent  statement 
made  by  Mr.  Samuel  Gompers,  president  of  the  American  Federation 
of  Labor,  before  this  committee.     The  purpose  of  that  statement,  as 

1  Pp.  2072-2104. 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE     615 

I  understood  it,  was  to  urge  upon  this  committee  an  amendment  that 
would  exempt  combinations  of  labor  from  the  terms  of  the  act,  on  the 
theory  that  it  was  not  the  intention  of  Congress,  in  the  first  instance, 
to  include  them,  and  that  by  their  very  nature,  purpose,  and  methods 
they  ought  not  to  be  included  in  an  act  of  this  character.  And,  with 
your  indulgence,  I  desire  especially  to  call  the  attention  of  the  com- 
mittee to  what  I  conceive  to  be  the  serious  legal  and  historic  error  of 
that  statement. 

I  think  it  is  demonstrable  that  it  was  the  intention  of  those  who 
may  be  said  to  have  framed  the  so-called  Sherman  Act  in  the  Senate 
of  the  United  States  to  include  combinations  of  labor  as  well  as  com- 
binations of  capital,  voluntary  as  well  as  corporate  organizations  and 
associations,  within  its  terms.  Furthermore,  the  effort  to  exclude 
combinations  of  labor  not  only  failed  at  the  time  the  act  was  passed, 
but  subsequent  efforts  to  exempt  them  have  been  repulsed,  both  as 
a  matter  of  policy  and  as  a  proposition  of  constitutional  law,  no  less 
than  three  times,  the  last  formal  endeavor  meeting  refusal  in  1908. 


In  1908  a  proposal  for  exempting  labor  organizations  was  again 
submitted,  not  in  so  direct  a  form,  but  intended  to  accomplish  the 
same  result.  It  was  included  in  the  so-called  Hepburn  amendment 
to  the  Sherman  Act.  It  was  part  of  a  measure  introduced  in  the  House 
by  Mr.  Hepburn  and  in  the  Senate  by  Senator  Warren.  It  was  dis- 
cussed at  great  length  before  the  Judiciary  Committees  of  the  House 
and  Senate.  Mr.  Littlefield,  chairman  of  the  House  subcommittee, 
manifested  his  opposition  to  the  proposal  in  public  speech  and  the 
matter  died  in  his  committee,  while  the  Senate  Committee  on  the 
Judiciary  adversely  reported  the  bill  of  which  the  proposed  amend- 
ment was  a  part. 

So  throughout  th^  l:gislativ2  history  of  this  act  during  tho  22  years 
it  has  bi^en  upon  th3  statut:  books,  while  the  courts  have  continued 
to  interpret  the  act  and  apply  it  to  certain  injurious  and  ma- 
licious acts  of  unions,  as  indeed  to  all  classes  of  combinations  which 
undertake  to  restrain  interstate  commerce,  a  continuous  effort  has 
been  made  by  labor  organizations  to  get  out  from  under  it.  But 
Congress  has  continuously  refused  to  make  them  privileged  law- 
breakers. 

Now,  if  it  were  true,  Mr.  Chairman,  that  the  Sherman  Act  made 
labor  organizations  unlawful  per  se,  so  that  men  could  neither  com- 
bine to  protect  their  wages  nor  improve  their  working  conditions,  or 
to  do  any  of  those  lawful  although  severe  acts  which  are  sometimes 
necessary  to  justly  defend  their  industrial  rights  and  interests,  then 
it  would  indeed  be  time  that  the  Sherman  Act  should  be  amended, 
so  that  in  this  day  and  age  of  association  the  fundamental  right  of 


6i6  EXCERPTS   FROM   TESTIMONY   BEFORE 

men  to  organize  should  be  recognized.  But,  sir,  I  venture  to  say 
that  not  only  is  the  right  of  men  to  organize  and  act  collectively 
clearly  and  completely  vindicated  throughout  the  judicial  decisions 
interpreting  acts  in  which  it  was  at  issue,  but  I  venture  to  assert 
that  in  no  other  department  of  litigation  are  those  rights  more  "clearly 
and  explicitly  recognized. 


But,  sirs,  a  still  more  powerful  recognition  of  the  just  rights  of 
organized  labor  under  the  Sherman  Act  is  to  be  found  in  the  case  of 
Thomas  1^5.  Cincinnati  (62  Fed.  803),  a  proceeding  in  the  Circuit 
Court  for  the  Southern  District  of  Ohio.  .  .  . 

.  .  .  The  court  says,  in  considering  the  rights  of  the  parties  in 
question : 

Now,  it  may  be  conceded  in  the  outset  that  the  employees  of  the  receiver 
had  the  right  to  organize  into  or  to  join  a  labor  union  which  should  take 
joint  action  as  to  their  terms  of  employment.  It  is  of  benefit  to  them  and 
to  the  public  that  laborers  should  unite  in  their  common  interest  and  for 
lawful  purposes.  They  have  labor  to  sell.  If  they  stand  together,  they  are 
often  able,  all  of  them,  to  command  better  prices  for  their  labor  than  when 
dealing  singly  with  rich  employers,  because  the  necessities  of  a  single  em- 
ployee may  compel  him  to  accept  any  terms  offered  him.  The  accumula- 
tion of  a  fund  for  the  support  of  those  who  feel  that  the  wages  offered  -are 
below  market  prices  is  one  of  the  legitimate  objects  of  such  an  organization. 
They  have  the  right  to  appoint  officers  who  shall  advise  them  as  to  the 
course  to  be  taken  by  them  in  their  relations  with  their  employer.  They 
may  unite  with  other  unions.  The  officers  they  appoint,  or  any  other  per- 
son to  whom  they  choose  to  listen,  may  advise  them  as  to  the  proper  course 
to  be  taken  by  them  in  regard  to  their  employment,  or,  if  they  choose  to 
repose  such  authority  in  anyone,  may  order  them,  on  pain  of  expulsion  from 
their  union,  peaceably  to  leave  the  employ  of  their  employer  because  any 
of  the  terms  of  their  emplojonent  are  unsatisfactor3^  It  follows,  therefore 
(to  give  an  illustration  which  will  be  understood),  that  if  Phelan  had  come 
to  this  city  when  the  receiver  reduced  the  wages  of  his  employees  by  10 
per  cent  and  had  urged  a  peaceable  strike  and  had  succeeded  in  maintain- 
ing one  the  loss  to  the  business  of  the  receiver  would  not  be  ground  for 
recovering  damages  and  Phelan  would  not  have  been  liable  to  contempt, 
even  if  the  strike  much  impeded  the  operation  of  the  road  under  the  order 
of  the  court. 

There,  Mr.  Chairman,  is  as  fair  and  complete  a  vindication  of  the 
rights  of  labor  organizations  as  any  reasonable  man  can  ask.  What 
the  court  condemned  in  this  case  is  worth  just  a  further  quotation, 
because  it  plainly  reveals  and  describes  with  peculiar  force  those 
activities  which  require  the  Sherman  Act  to  apply  to  combinations  of 
labor,  and  clearly  distinguishes  them  from  the  lawful  activities  in 
which  a  labor  organization  may  engage. 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    617 

The  court  says : 

But  the  combination  was  unlawful  without  respect  to  the  contract 
feature  — 

It  is  being  considered  under  two  aspects,  under  the  Hepburn  Act 
and  under  the  Sherman  Act  — 

It  was  a  boycott.  The  employees  of  the  railway  companies  had  no 
grievance  against  their  emploj'ers.  Handling  and  hauling  Pullman  cars  did 
not  render  their  services  any  more  burdensome.  They  had  no  complaint 
against  the  use  of  Pullman  cars  as  cars.  They  came  into  no  natural  relation 
with  Pullman  in  handHng  the  cars.  He  paid  them  no  wages.  He  did  not 
regulate  their  hours  or  in  any  way  determine  their  services.  Simply  to 
injure  him  in  his  business  they  were  incited  and  encouraged  to  compel  the 
railway  companies  to  withdraw  custom  from  him  by  threats  of  quitting 
their  service,  and  actually  quitting  their  service.  This  inflicted  an  injury 
on  the  companies  that  was  very  great,  and  it  was  unlawful,  because  it  was 
without  lawful  excuse.  AH  the  employees  had  the  right  to  quit  their  em- 
ployment, but  they  had  no  right  to  combine  to  quit  in  order  thereby  to 
compel  their  employer  to  withdraw  from  a  mutually  profitable  relation  with 
a  third  person  for  the  purpose  of  injuring  that  third  person,  when  the  rela- 
tion thus  sought  to  be  broken  had  no  effect  whatever  on  the  character  or 
reward  of  their  service.  It  is  the  motive  for  quitting  and  the  end  sought 
thereby  that  make  the  injury  inflicted  unlawful  and  the  combination  by 
which  it  is  effected  an  unlawful  conspiracy.  The  distinction  between  an 
ordinary  lawful  and  peaceable  strike  entered  upon  to  obtain  concessions  in 
the  terms  of  the  strikers'  employment  and  a  boycott  is  not  a  fanciful  one  or 
one  which  needs  the  power  of  fine  distinction  to  determine  which  is  which. 
Every  laboring  man  recognizes  the  one  or  the  other  as  quickly  as  the  lawyer 
or  the  judge.  The  combination  under  discussion  was  a  boycott.  It  was  so 
termed  by  Debs,  Phelan,  and  all  engaged  in  it.  Boycotts,  though  unaccom- 
panied by  violence  or  intimidation,  have  been  pronounced  unlawful  in  every 
State  of  the  United  States  where  the  question  has  arisen,  unless  it  be  in 
Minnesota,  and  they  are  held  to  be  unlawful  in  England. 

^  4:  4:  ^  4:  4:  % 

The  absurd  theory  that  argues  behind  every  effort  to  exempt  labor, 
organizations  from  the  Sherman  Act  is  that  a  combination,  which  has 
no  capital  stock  and  is  not  conducted  for  profit,  cannot  successfully 
restrain  trade  or  menace  the  freedom  of  a  trader  and  that  the  Sherman 
Act  was  intended  to  apply  only  to  combinations  of  business  men 
engaged  in  interstate  business  and  undertaking  by  agreement  to  con- 
trol prices,  establish  monopolies,  or  unlawfully  dominate  competitors 
by  the  destruction  or  subjection  of  competitors. 

Surely,  gentlemen  of  the  committee,  there  can  be  nothing  clearer 
than  that  the  law  does  not  confine  its  condemnation  to  any  one 
method  of  restraining,  destroying,  or  obstructing  free  flow  of  com- 
merce.    It  makes  no  difference  whether  the  obstruction  be  physical  or 


6i8  EXCERPTS   FROAI   TESTIMONY   BEFORE 

economic ;  "whether,"  as  the  Attorney  General  of  theUnited  States  said 
in  the  Northern  Securities  case,  "it  is  a  mob,  a  monopoly,  or  a  sand 
bank  "  ;  whether  it  is  a  combination  of  business  men  undertaking  to 
destroy  their  competitors  by  unlawful  methods  or  whether  it  is  in- 
dividuals conspiring  to  sink  a  ship  in  a  channel  or  destroy  a  railroad 
bridge  for  the  express  purpose  of  stopping  the  movement  of  interstate 
commerce.  The  chief  object  of  the  law  is  to  secure  and  maintain 
the  freedom  of  those  engaged  in  interstate  commerce,  each  within  his 
own  lawful  right,  to  conduct  his  commerce  as  he  pleases,  so  long  as 
he  does  not  infringe  the  equal  right  of  any  other  man  to  like  liberty. 
Are  there  any  facts  more  certain  in  the  history  of  this  country  than 
the  repeated  demonstrations  given  in  the  face  of  the  Nation  of  the 
power  of  combinations  of  men  without  capital  stock  not  only  to  in- 
terrupt but  absolutely  to  halt  the  commerce  of  the  United  States  by 
preventing  the  operation  of  railroads  of  any  particular  section? 
Judge  Taft  described  one  such  conspiracy  as  an  effort  by  a  combina- 
tion to  starve  the  people  of  the  United  States  into  submission,  using 
their  suffering  as  a  means  of  compelling  a  private  employer  to  yield 
to  the  will  of  the  combination. 

Can  any  man  who  is  familiar  with  recent  disclosures  believe  any 
longer  that  a  combination  without  capital  stock  may  not  be  a  most 
dangerous  menace  to  the  flow  of  commerce  in  this  country,  inter- 
rupting its  movement  and  rupturing  the  relations  of  its  human 
agencies  by  physical  \4olence  if  need  be?  Can  any  man  with  the 
obvious  conspiracy  that  lies  behind  the  confession  in  the  McNamara 
case  deceive  himself  in  that  regard? 


I,  and  all  I  represent,  are  firm  believers  in  the  right  of  men  to  organ- 
ize for  the  protection  of  their  hours,  labor,  and  working  conditions. 
Many  thousands  of  men  employed  by  my  clients  are  members  of  labor 
organizations  of  all  kinds,  and  we  do  not  and  never  have  questioned 
their  right  to  form  unions  and  by  legitimate  action  enforce  their  de- 
mands. We  ask  for  no  other  restrictions  for  them  than  the  same  law 
places  on  all  other  citizens.  We  insist  that  any  combination  of  work- 
men or  employers  that  deliberately  undertakes  to  compel  another 
man  to  engage  in  interstate  commerce  in  accordance  with  its  will  or 
not  at  all,  or  that  undertakes  to  ruin  the  trade  and  persecute  the  trader 
who  differs  with  its  economic  judgment  and  will  not  bow  to  its  eco- 
nomic demands,  always  has  been,  and  in  a  free  country  always  must 
be,  condemned  by  law,  whether  it  assumes  corporate  or  voluntary 
form.  That  principle  always  has  been  recognized  in  applying  the 
Sherman  Act  to  combinations  of  capital  or  employers,  as  witness  the 
case  of  Montague  vs.  Lowry  (193  U.S.),  which  was  a  voluntary  com- 
bination of  tile  dealers ;  or  the  case  of  Coal  Dealers'  Association  (85 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    619 

Fed.  252),  which  was  condemned  and  dissolved  by  the  Circuit  Court 
of  the  United  States  in  CaUfornia.  These  and  other  voluntary  asso- 
ciations, without  capital  stock,  and  not  conducted  for  profit,  in  the 
same  sense  as  a  labor  organization,  have  offended  the  Sherman  Act. 
If  we  do  not  continue  to  restrain  or  punish  combinations  of  workmen 
when  they  undertake  to  destroy  and  oppress  traders  or  other  work- 
men engaged  in  interstate  commerce,  it  will  not  for  equal  reasons  of 
principle  be  possible  to  protect  the  same  trader  against  the  acts  of  a 
voluntary  association  of  employers,  who  undertake  to  compel  him  to  do 
business  in  accordance  with  their  will  and  upon  their  terms,  or  not 
at  all,  as  did  the  combinations  of  tile  dealers  and  coal  dealers. 


Now,  what  are  these  boycotts  for  which  the  constitution  of  the 
American  Federation  of  Labor  makes  "special  provision,"  and  which 
it  is  said  if  the  organization  were  deprived  of  the  power  of  prosecut- 
ing its  usefulness  to  its  members  would  be  destroyed?  Let  me  again 
resort  to  the  organization  itself  for  a  description  of  its  favorite  weapon 
and  an  urgent  appeal  for  its  effective  use.  The  proceedings  of  the 
convention  of  the  American  Federation  of  Labor,  held  at  Pittsburgh, 
Pa.,  November  20,  1905,  discloses  the  following  from  the  report  of 
the  committee  on  boycotts: 

We  must  recognize  the  fact  that  a  boycott  means  war,  and  to  success- 
fully carry  on  a  war  we  must  adopt  the  tactics  that  history  has  shown  are 
most  successful  in  war.  The  greatest  master  of  war  said  that  "war  was  the 
trade  of  a  barbarian,  and  that  the  secret  of  success  was  to  concentrate  all 
your  forces  upon  one  point  of  the  enemy,  the  weakest  if  possible."  In  view 
of  these  facts  the  committee  recommends  that  the  State  federations  and 
central  bodies  lay  aside  minor  grievances  and  concentrate  their  efforts  and 
energies  upon  the  least  number  of  unfair  parties  or  places  in  their  jurisdic- 
tion. One  would  be  preferable.  If  every  available  means  at  the  command 
of  the  State  federations  and  central  bodies  were  concentrated  upon  one 
such  and  kept  up  until  successful,  the  next  on  the  list  would  be  more  easily 
brought  to  terms  and  within  a  reasonable  time  none  opposed  to  fair  wages, 
conditions,  or  hours  but  would  be  brought  to  see  the  error  of  their  ways 
and  submit  to  the  inevitable.  Under  the  present  system  our  efforts  are 
largely  wasted  and  out  ammunition  scattered.  Let  us  reduce  the  boycotts 
to  the  lowest  possible  number  and  concentrate  our  efforts  upon  those,  and 
we  feel  certain  better  results  will  be  obtained. 

The  boycott  is  war ;  and  it  is  this  war-making  power  these  gentle- 
men seek  to  retain  by  securing  exemption  from  the  Sherman  Act. 
The  boycott  here  described  is  not  executed  by  a  body  of  men  merely 
withdrawing  their  patronage  from  one  with  whom  they  have  a  dis- 
pute, but  a  disciplined  combination,  who  systematically  go  to  A,  B, 
C,  and  D,  and  others  ad  infinitum,  who  have  or  are  likely  to  have 


620  EXCERPTS   FROM   TESTIMONY    BEFORE 

commercial  relations  with  the  individual  or  firm  who  incurs  their  dis- 
pleasure and  say  to  each  of  them :  "If  you  engage  in  commercial  rela- 
tions with  A  until  he  satisfactorily  adjusts  his  relationship  with  us  we 
shall  visit  our  anger  upon  you  to  the  same  extent  that  we  visit  it  upon 
him."  These  are  the  circumstances  presented  in  the  Loewe  case  and 
the  Buck  Stove  and  Range  Company  cases,  and  a  thousand  others  like 
them.  I  refer  to  these  two  by  name  merely  because  they  are  or  have 
been  most  prominently  before  the  courts  and  the  public.  There  was 
evidence  in  the  Buck  Stove  and  Range  case  —multiplied  evidence  —  of 
committee  after  committee  in  a  hundred  cities  calling  upon  long-stand- 
ing customers  of  the  plaintiff  requesting,  then  demanding,  and  threaten- 
ing the  business  life  of  the  dealer  if  he  did  not  stop  selling  the  Buck 
stove  and  range,  and  when,  as  often  occurred,  the  dealer  answered,  "I 
have  a  contract  with  the  Buck  Stove  and  Range  Company  to  handle  its 
stoves  that  has  two  or  three  years  to  run  and  I  cannot  break  it  with- 
out serious  legal  liability,"  the  committee  replied:  "Very  well;  you 
either  stop  selling  Buck  stoves,  or  we  will  stop  you  from  selling  any- 
thing else" ;  and  I  am  quoting  substantially  the  words  of  the  threat. 


Senator  Cummins.  I  think  we  all  agree,  or  may  agree  for  the  pur- 
pose of  this  examination,  that  the  things  you  have  described  ought  to 
be  not  only  prohibited,  but  punished.  But  you  stated  originally  that 
the  labor  union,  per  se,  organized  simply  for  the  purpose  of  increasing 
the  wages  of  its  members  — 

Mr.  Emery.    Or  maintaining  them. 

Senator  Cummins.  Either  retaining  or  increasing  the  wages  of  its 
members  was  an  innocent  organization  under  the  law.  Do  you 
believe  it  is  innocent  because  it  is  not  directly  related  to  interstate 
commerce  or  do  you  believe  it  is  innocent,  as  Judge  Taft  apparently 
believed  it  was  innocent,  because  it  was  beneficial  to  the  people  and 
promoted  the  welfare  of  commerce  rather  than  restricted  or  restrained 
commerce?     Now,  which  do  you  believe? 

Mr.  Emery.  I  believe  it  is  lawful  for  both  reasons,  because  in  a 
Government  like  ours  the  tendency  is  to  recognize  any  proper  safe- 
guard which  affords  efficient  and  proper  protection  to  the  economic 
welfare  of  the  individual  workman. 

Senator  Cummins.  So  that  if  there  is  danger  that  the  law  will  ulti- 
mately be  applied  to  the  labor  union  so  as  to  prohibit  what  you  have 
described  as  their  lawful  purposes,  namely,  the  enhancement  of  their 
wages,  or  the  betterment  of  their  condition,  then  they  ought  to  be 
taken  out  [of  the  operation  of  the  anti-trust  act],  ought  they  not,  so 
far  as  those  purposes  and  those  objects  are  concerned  ? 

Mr.  Emery.  Of  course  I  assume  that  the  law  in  that  regard  —  as 
the  law  in  all  other  regards  —  will  conform  itself,  as  the  law  always 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    621 

does,  to  changing  conditions.  It  grows  with  us,  and  is  fashioned  to 
new  conditions  as  they  arise.  The  remoteness  between  the  organi- 
zation affecting  wages  and  the  subject  matter  of  interstate  commerce, 
to  which  you  draw  my  special  attention,  is  recognized  in  principle 
by  the  Supreme  Court  and  by  all  our  Federal  courts  in  the  interpre- 
tation of  the  Sherman  Act  by  the  refusal  to  apply  that  law  to  those 
combinations,  agreements,  or  contracts  which  only  remotely  and  in- 
directly affect  interstate  commerce,  while  it  does  apply  to  those  in 
which  either  as  a  matter  of  intention  or  as  a  matter  of  effect  a  direct 
restraint  is  produced. 

So  I  assume  that  the  same  distinction  would  apply  in  other  matters, 
but  if  a  time  arose  when  a  combination  or  agreement,  however  in- 
direct, was  turned  into  an  instrument  that  directly  and  dangerously 
affected  commerce  itself,  I  should  assume  the  law  would  apply  to  it. 
The  court  would  look  through  the  character  of  the  agreement  to  the 
effect  and  purpose  — 

Senator  Cummins.  To  sum  it  all  up,  I  will  ask  you  simply  to 
reiterate  what,  indeed,  you  have  already  stated,  namely,  that  it 
ought  to  be  lawful,  and  you  believe  it  is  lawful,  for  workingmen  to 
combine  in  unions  for  the  purpose  of  increasing  their  wages  and  better- 
ing the  conditions  under  which  they  live. 

Mr.  Emery.   By  lawful  methods. 

Senator  Cummins.  And  only  when  these  labor  unions,  or  members 
of  labor  unions,  go  further  and  interfere  with  the  rights  of  others  to 
work  should  they  be  condemned  by  the  law? 

Mr.  Emery.  Or  to  trade.  It  is  not  only  that  they  interfere  with 
the  right  of  others  to  work,  but  they  interfere  with  the  right  of  others 
to  sell  their  goods  and  engage  in  trade  and  commerce. 

Senator  Cummins.  And  that  the  right  you  have  just  suggested 
would  not  be  impaired  or  interfered  with  by  merely  quitting  work  ? 

Mr.  Emery.    No,  sir. 

Mr.  Emery.  I  think  there  is  a  false  notion  in  the  minds  of  the 
gentlemen  making  the  distinction  as  to  the  phase  of  the  activity  of  labor 
combinations,  to  which  the  law  seems  to  mainly  direct  its  efforts.  In 
all  of  the  cases  that  are  presented  under  the  Sherman  Act  no  question 
is  raised  as  to  a  combination  of  the  working  capacities  of  the  men. 
They  are  generally  exhibited  in  the  act  of  undertaking  to  interfere 
with  some  person  engaged  in  interstate  commerce  in  order  to  compel 
him  to  agree  to  some  demand  which  they  have  made  upon  him,  and 
they  use  their  purchasing  capacity  in  combination  —  and  sometimes 
other  forms  of  activity  —  for  the  purpose  of  compelling  a  particular 
employer,  we  will  say,  to  grant  some  demand  which  they  have  made, 


62  2  EXCERPTS   FROM   TESTIMONY   BEFORE 

under  penalty  of  withdrawing  from  him  their  patronage  and  coercing 
his  other  patrons  to  do  likewise.  They  go  down  the  line  and  under- 
take to  make  each  person  who  deals  with  the  employer  party  to  their 
dispute,  whether  he  is  or  not,  by  compelling  him  under  fear  of  loss  to 
withdraw  his  valuable  patronage.  They  undertake  to  destroy  the 
good  will  of  the  employer's  business  and  the  business  itself  —  some- 
times by  physical  obstruction  and  sometimes  by  economic  obstruction. 

Now,  the  labor  of  an  individual  is,  I  think,  usually  regarded  as 
commodity.  We  are  in  the  habit  of  hearing  a  man  speak  of  selling 
his  labor  to  another.  He  sells  his  physical  energy  just  as  a  lawyer 
sells  his  learning  and  ability,  whatever  it  may  be.  He  is  selling  some- 
thing that  is  a  part  of  himself  as  distinguished  from  some  commodity 
which  is  distinct  and  apart  from  himself.  He  is  selling  some  power, 
some  experience,  some  skill  which  he  has,  as  men  have  done  from  the 
beginning  of  time.  However  poor  a  man  is,  the  power  of  every  man 
to  labor  is  his  capital,  and  in  the  last  analysis  it  is  the  sole  treasure 
house  out  of  which  every  man  pays  his  own  way  in  the  w^orld,  whether 
it  be  the  labor  of  his  hands  or  the  labor  of  his  brain  ;  so,  economically 
speaking,  it  would  seem  as  though  capital  itself  is  simply  accumulated 
labor.  Whether  it  is  in  the  form  of  money  or  any  other  form  of 
wealth,  it  represents  originally  labor. 

So  the  distinction  sought  to  be  established  between  men  combining 
labor  and  men  combining  capital  is  from  an  economic  standpoint,  a 
distinction  apparently  without  a  difference. 

Senator  Brandegee.  What  in  your  opinion  is  the  difference  be- 
tween the  organization  for  profit  and  the  organization  which  seeks 
to  obtain  for  its  members  higher  wages? 

Mr.  Emery.  I  do  not  see  any  relationship  whatever  between  profit 
as  a  purpose  and  any  restraint  or  obstruction  that  is  or  may  be  placed 
upon  commerce  by  combination,  because  restraint  does  not  always 
arise  out  of  the  direct  intention  to  make  profit.  Sometimes  the  pur- 
pose is  control,  just  as  it  has  been  asserted  again  and  again  that,  for 
instance,  the  Standard  Oil  Co.  sells  oil  more  cheaply  than  it  was  sold 
under  conditions  of  competition,  and  it  is  asserted  by  many  economic 
writers  that  monopoly  tends,  by  economy  of  admmistration  and  by 
the  saving  of  many  expenses  that  exist  under  competition,  to  make 
possible  the  production,  distribution,  and  sale  of  a  given  commodity 
at  a  lesser  price  than  under  competitive  conditions.  The  difficulty 
seems  to  lie  in  the  fact  that  while  a  monopoly  has  the  power  to  pro- 
duce more  cheaply  it  does  not  often  give  the  public  the  benefit  of  it. 

Senator  Brandegee.  I  do  not  think  you  understood  me.  What 
I  intended  to  ask  you  was  what  distinction  in  principle  do  you  see 
between  an  organization  of  men  to  make  money  in  the  shape  of  profits, 
and  distribute  them  in  the  shape  of  dividends,  and  an  organization 
of  men  to  obtain  more  money  in  wages  for  themselves? 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    623 

Mr.  Emery.  As  you  state  the  parallel,  I  do  not  see  much  distinc- 
tion. 

Senator  Brandegee.  It  is  stated  that  the  labor  organization  is  not 
an  organization  for  profit,  and  that  the  business  organization  is,  and 
that  therefore  the  labor  organization  should  not  be  under  the  con- 
trol of  the  Sherman  law.  I  wondered  if  it  were  true  that  when  men 
organized  to  raise  their  wages  and  obtain  other  advantages  and  im- 
prove their  condition  —  whether  that  was  really  an  entirely  different 
thing  from  men  who  organized  to  make  money  and  distribute  it  in 
the  shape  of  dividends. 

Mr.  Emery.  Well,  if  one  looks  at  the  labor  organization  simply  as 
a  combination  to  enhance  wages  and  a  corporation  merely  from  the 
standpoint  of  an  organization  intended  to  make  profit,  there  is  ap- 
parently no  distinction  of  purpose.  Each  endeavors  to  make  profit 
for  its  members  or  shareholders.  They  each  have  something  different 
to  sell,  but  both  undertake  to  make  money.  One  combines  to  invest 
capital  and  produce  for  profit,  and  the  other  combines  to  act  together 
for  the  purpose  of  increasing  the  pecuniary  returns  of  each  member. 
But  let  me  reply  to  your  former  cjuestion.  In  many  cases  the  demand 
of  the  labor  organization,  in  a  dispute  that  arises  between  it  and  the 
employer,  is  not  based  primarily  upon  effort  to  increase  wages  and, 
therefore,  to  make  profits.  It  is  based  upon  an  attempt  to  secure 
control  in  an  industry.  For  instance,  take  the  dispute  over  the 
open  and  closed  shop.  There  the  primary  purpose  is  not  to  increase 
the  wage.  Many  disputes  of  that  kind  arise  where  there  are  no  dis- 
agreements as  to  wage  whatever,  but  where  the  purpose  of  the  labor 
organization  is  to  secure  recognition  of  its  right  to  say  that  none  but 
its  members  shall  be  employed.  There  the  primary  purpose  of  com- 
bination is  to  establish  a  monopoly  in  order  that  it  may  control  the 
conditions  of  employment,  and  if  it  can  say  who  shall  be  employed, 
it  must  ultimately  possess  the  power  to  say  how  much  they  shall  receive. 


STATEMENT  OF  MR.  T.  J.  BROOKS,  REPRESENTING  THE 

FARMERS'  EDUCATIONAL  COOPERATIVE   UNION, 

ATWOOD,   TENN.i 


Mr.  Chairman  and  gentlemen  of  the  committee,  the  particular 
phase  of  this  question  which  it  is  our  purpose  to  discuss  relates  to 
that  portion  of  the  antitrust  law  which  might  be  construed  to  apply 
to  organizations  of  farmers. 

'  Pp.  2336-2350. 


624  EXCERPTS    FROM   TESTIMONY   BEFORE 

I  represent  the  Farmers'  Educational  Cooperative  Union,  the  largest 
organization  of  farmers  in  the  world.  It  extends  from  Virginia  to 
California  and  from  the  State  of  Washington  to  Florida,  including 
about  30  States. 

The  efforts  upon  the  part  of  the  farmer  to  adjust  his  business  to 
the  commercial  demands  of  the  age  necessarily  compel  him  to  organize. 
When  he  is  organized,  for  commercial  purposes,  the  object  of  his 
organization  should  be  proclaimed  without  reserve,  and  understood 
thoroughly  by  the  public. 

The  advantages  of  combination  are  the  advantages  of  better  organ- 
ization and  more  effective  operation,  cheaper  production  and  distribu- 
tion. The  disadvantages  of  combination  have  arisen  chiefly  from  the 
misuse  of  the  power  of  combination  which  develops  inio  monopoly. 

There  is  a  great  deal  of  difference  between  a  monopoly  whose  pur- 
pose is  to  coerce  and  oppress,  and  cooperative  organization  whose 
purpose  is  to  eliminate  useless  expense  without  in  any  degree  practic- 
ing extortion  by  withholding  from  the  consumer,  regardless  of  the 
law  of  supply  and  demand,  in  order  to  create  fictitious  values. 

A  great  deal  has  been  said  about  an  elastic  system  of  currency  that 
would  meet  those  periodic  demands  for  enormous  amounts  of  capital 
to  move  the  great  staple  crops  of  the  country  from  the  producer  to 
the  consumer.  In  other  words,  when  wheat  is  thrown  on  the  market 
at  harvest  time,  a  great  deal  of  money  is  required  to  purchase  this 
wheat  from  the  farmer,  hold  it  till  it  is  needed  by  the  mills,  and  finally 
sold  to  the  consumer  —  and  the  same  way  with  cotton.  In  the  fall 
of  the  year  something  over  $800,000,000  are  required  to  purchase  from 
the  farmer  his  cotton  crop.  He  usually  markets  it  so  fast  that  this 
volume  of  money  is  taken  from  other  channels  of  trade  to  the  incon- 
venience of  our  financial  institutions  in  order  to  hold  this  cotton  mitil 
the  mills  can  use  it.  Now,  an  organization  of  farmers  who  grow  wheat 
or  who  grow  cotton,  which  has  for  its  purpose  the  establishing  of  a 
system  whereby  the  farmer  can  assume  the  carrying  function,  and 
gradually  market  his  wheat  and  his  cotton  throughout  the  year, 
should  be  exempt  from  any  law  that  would  hinder  its  operation.  The 
purpose  of  the  organization  which  I  represent  is  to  facihtate  marketing 
according  to  the  normal  operation  of  the  law  of  supply  and  demand, 
and  is  in  no  sense  of  the  word  an  attempt  to  corner  the  market  and 
create  artificial  prices.  It  takes  a  great  deal  less  money  to  finance  the 
holding  of  a  crop  than  it  does  to  purchase  it  outright ;  and  by  gradual 
marketing  the  periodic  disturbance  in  our  commercial  world  would  be 
lessened,  and  the  evils  of  the  exchanges  mitigated. 

None  of  the  evils  of  overcapitalization,  oppression  of  employees,  or 
extortion  of  the  public  are  inherent  in  the  class  of  organizations  to 
which  we  refer.  A  law  whose  purpose  is  to  prevent  injustice  to  the 
public  should  be  so  worded  as  to  exempt  all  legitimate  enterprises 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    625 

where  there  is  no  attempt  to  misuse  the  public  confidence  or  destroy  or 
pervert  the  natural  operation  of  the  law  of  supply  and  demand  in  the 
markets  of  the  world.  We  believe  that  all  corporations  doing  inter- 
state business  should  be  required  to  come  to  the  strictest  standard 
of  account  as  to  their  tangible  assets  and  methods  of  operation. 
We  wish  it  to  be  clearly  provided  for  in  any  antitrust  law  that  no 
penalty  shall  attach  to  those  promoting  any  organization  or  combi- 
nation upon  the  part  of  producers  having  as  its  purpose  the  gradual 
marketing  of  farm  products.  We  think  it  would  be  performing  a 
great  public  service  to  so  arrange  the  delivery  of  our  staple  crops 
each  year  as  consumption  called  for  them,  instead  of  dumping  them 
on  the  market  regardless  of  the  demands  of  trade.  This  is  the  basis 
of  our  contention,  and  upon  this  contention  we  rest  our  plea  for 
exemption  from  antitrust  legislation. 

I  do  not  claim  that  the  present  law  makes  the  farmers'  organizations 
now  in  existence  subject  to  its  penal  provisions.  I  do  not  say  that 
any  amendments  proposed  would  interfere  with  any  business  organi- 
zation of  the  farmer.  But  what  I  do  suggest  is,  that  if  such  provisions 
could  by  technical  construction  be  construed  to  interfere,  that  they 
should  be  eliminated,  and  when  amendments  are  passed,  that  they 
should  be  so  worded  as  to  exempt  the  organizations  to  which  I  refer 
from  any  liabilities  to  its  prohibitory  features.  I  suppose  there  never 
would  have  been  an  antitrust  law  passed  had  it  not  been  that  there 
were  combinations  being  formed  which  were  calculated  to  do  an  in- 
justice to  the  pubhc.  If  any  such  organization  has  ever  been  formed 
by  the  agricultural  classes  I  have  not  seen  any  notice  of  it ;  I  have 
not  heard  of  any  organization  of  farmers  being  accused  of  plotting 
for  such  a  purpose.  The  condition  of  the  farmer  financially,  as  com- 
pared with  that  of  other  vocations,  would  indicate  that  he  has  not 
heretofore  made  use  of  any  unfair  means  by  which  he  could  extort 
from  his  patrons.  He  is  in  a  sense  a  manufacturer.  He  manufactures 
the  soil,  the  sunshine,  and  the  showers  into  the  raw  materials  that 
feed  and  clothe  the  people  of  the  world.  He  has  never  arrogated  to 
himself  the  prerogatives  that  his  power  might  indicate  that  he  could  if 
he  so  chose.  Beginning  with  ninety  per  cent  of  the  wealth,  when  this 
Government  was  first  launched  among  the  sovereignties  of  the  world, 
he  has  now  only  about  one-fifth  of  the  aggregate  wealth  of  the  Nation  ; 
and  only  a  part  of  the  farmers  own  this  percentage.  A  great  per 
cent  of  them  are  propertyless.  In  fact,  one-half  of  the  plowmen  of 
this  Nation  have  no  home.  We  have,  approximately,  93,000,000 
people  who  are  supported  by  about  twelve  and  one- half  million  actual 
field  hands,  who  produce  the  food  and  raiment  that  feeds  and  clothes 
the  93,000,000  people  at  home  and  millions  beyond  the  seas.  Is  it  not 
an  alarming  state  of  affairs  that  one-half  of  these  producers  have  no 
place  on  this  planet  that  they  can  call  their  own?     So  a  combination 


626  EXCERPTS   FROM   TESTIMONY   BEFORE 

of  the  farmers  when  organized  for  mutual  benefit  should  not  run 
against  some  national  statute  intended  for  public  protection.  Ac- 
cording to  the  census  of  1910  the  manufacturers  of  the  United  States 
are  worth  approximately  twenty  billions  of  dollars,  and  their  yearly 
output  is  valued  at  the  same  figures,  employing  6,500,000  hands  and 
paying  them  $3,427,000,000.  How  is  it  that  the  farmer,  who  has 
something  like  twenty-eight  billions  invested,  twice  as  many  hands, 
and  the  annual  value  of  his  crop,  at  farm  prices,  is  only  $9,000,000,000? 
We  may  see  here  some  indication  of  the  cause  of  the  exits  from  the 
country  to  the  towns  and  cities.  The  cry  of  "back  to  the  farm,"  of 
which  we  have  seen  so  much  in  the  press  of  late,  is  invariably  a  com- 
mand to  "go"  and  not  an  entreaty  to  "come."  In  other  words,  the 
farmer  is  not  begging  the  people  to  come  from  the  city  to  help  him 
farm,  but  the  city  man  is  urging  people  to  go  back  to  the  country, 
but  seldom  does  he  take  his  own  advice.  I  mention  these  things 
merely  to  show  that  the  farmer  is  not  holding  his  own  in  the  race  of 
life.  We  have  about  one  million  corporations  in  the  United  States, 
which  control  82  per  cent  of  the  wealth  of  the  nation. 

Organizations  among  the  agricultural  classes  have  taken  some  form 
of  cooperation.  Not  all  of  them  have  been  strictly  cooperative  asso- 
ciations. In  a  strictly  cooperative  enterprise  there  is  no  such  thing 
as  profit  and  loss.  If  it  is  strictly  cooperative,  there  can  be  neither 
profit  nor  loss  under  correct  management.  Therefore,  such  enter- 
prises do  not  appeal  to  great  elements  of  our  people  who  are  saturated 
with  the  speculative  spirit.  One  reason  why  bogus  stocks  can  be 
sold  to  the  people,  accompanied  by  flaming  advertisements  of  promises 
of  unreasonable  profits,  is  because  of  this  speculative  mania,  this  get- 
rich-quick  idea  that  permeates  society.  All  cooperative  undertakings 
have  to  combat  this  speculative  spirit.  Those  who  are  asked  to  join 
the  cooperative  enterprises  must  first  be  convinced  that  there  is  as 
much  money  in  saving  losses  as  there  is  in  receiving  dividends  on 
legitimate  investments. 

Organizations  in  various  parts  of  the  United  States  have  been 
developed  to  aid  in  marketing  farm  products,  and  a  few  of  these  I 
wish  to  call  to  the  attention  of  the  committee,  that  we  may  analyze 
their  purpose  and  system  of  operation  in  the  light  of  modern  neces- 
sity and  see  whether  or  not  they  are  justifiable  upon  grounds  of 
expediency  and  ethics ;  if  so,  then  all  national  laws  purporting  to 
regulate  combinations  of  a  commercial  nature  should  avoid  inter- 
fering with  such  organizations. 

The  first  which  I  will  refer  to  is  the  Fruitgrowers'  Association 
of  California.  I  will  say,  for  the  sake  of  the  record,  that  I  am  not 
officially  representing  that  organization,  but  I  merely  give  their 
methods  of  doing  business  as  an  illustration.  Further  on  I  shall 
come  to  those  organizations  which  I  do  represent. 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    627 

Out  in  California  the  citrus-fruit  growers  were  getting  returns  in 
red  ink  for  their  fruit  before  they  got  in  earnest  and  organized.  The 
California  Fruit  Growers'  Exchange  is  the  outgrowth  of  their  troubles. 
It  ships  annually  20,000  cars  of  fruit.  The  system  consists  of  the 
local  associations,  the  district  exchanges,  and  the  general  fruit  growers' 
exchange.  Separate  contracts  link  the  three  together.  The  grower 
contracts  with  the  local  associations,  the  local  associations  contract 
with  the  district  exchanges,  and  the  district  exchanges  contract  with 
the  California  Fruit  Exchange.  There  are  more  than  80  associations 
covering  every  citrus-fruit  district  of  California,  and  packing  nearly 
200  guaranteed  brands  of  oranges  and  lemons.  The  local  exchanges 
elect  the  directors  of  the  general  exchange.  From  top  to  bottom  the 
organization  is  planned,  dominated,  and  controlled  by  the  growers  for 
the  members.  No  corporation  or  individual  reaps  from  it  any  divi- 
dends or  private  gain. 

A  part  of  section  9  of  the  contract  between  the  grower  and  the  local 
association  reads  as  follows  : 

Therefore  each  of  the  second  parties  expressly  stipulates  and  agrees  that 
he  will  not  sell  or  otherwise  dispose  of  his  said  fruit  to  any  person  or  cor- 
poration other  than  to  said  first  party,  as  herein  provided ;  and  that  in  case 
he  shall  fail,  refuse,  or  delay  to  pick  and  deliver  his  said  fruit  to  the  first 
party  within  five  days  after  demand  therefor,  the  first  party  shall  have  the 
right,  at  its  option,  at  any  time  or  times  thereafter,  and  from  time  to  time, 
to  enter  into  the  possession  of  his  said  premises  and  to  pick  his  said  fruit, 
or  any  part  thereof,  and  take  the  same  to  the  packing  house  of  the  first 
party  and  pack,  sell,  and  market  the  same,  all  at  his  cost  and  expense, 
which  said  cost  and  expense  shall  and  may  be  retained  by  the  first  party 
out  of  any  moneys  received  from  the  sale  of  any  of  his  fruit. 

A  part  of  the  contract  between  the  local  associations  and  the  dis- 
trict exchanges  reads  as  follows : 

The  parties  of  the  second  part  do  hereby  severally  agree  to  market  all 
fruit  now  controlled  by  them  or  that  may  hereafter  come  under  their  control 
during  the  term  of  this  agreement  through  said  first  party,  it  being  under- 
stood and  agreed  that  the  said  party  of  the  first  part  has  entered  into  an 
agreement  with  the  California  Fruit  Growers'  Exchange  for  the  sale  of  said 
fruit  in  accordance  with  the  general  plan  adopted  by  said  exchange,  to 
which  plan  and  agreement  reference  is  hereby  made,  and  the  same  is  hereby 
made  a  part  of  this  agreement. 

A  part  of  the  contract  between  the  district  exchanges  and  the 
general  exchange  reads  as  follows : 

Said  second  party  agrees  that  if  at  any  time  during  the  life  of  this  agree- 
ment it  fails  to  ship  all  its  citrous  fruits  as  hereinbefore  agreed  upon,  or  shall 
dispose  of  any  of  it  elsewhere,  or  otherwise  than  as  herein  agreed  upon, 


628  EXCERPTS   FROM  TESTIMONY   BEFORE 

that  it  will  forfeit  any  pay  as  liquidated  damages  to  party  of  the  first  part 
an  amount  equal  to  twenty-five  cents  a  box  on  all  such  citrous  fruits  which 
are,  or  maybe  shipped  or  sold  elsewhere  than  as  stipulated  in  this  contract, 
provided  the  first  party  was  ready  and  willing  to  receive  and  handle  such  fruit . 

Now,  it  is  very  clear  that  the  purpose  of  that  organization  is  to 
control  the  marketing  of  the  citrus  fruits  of  California,  and  the  effect 
of  it  has  been  that  it  has  made  fruit  growing  a  profit  whereas  it  was  a 
loss  before.  They  certainly  had  certain  powers  there  that  might  be 
construed  by  some  courts  as  in  restraint,  or,  in  other  words,  regulating 
the  outflow  of  crops,  and  thereby,  in  a  measure  at  least,  affecting 
prices. 

yp  in  the  Hood  River  Valley  of  Oregon  they  have  an  apple- growers' 
association  which  does  not  allow  the  grower  of  his  apples  to  gather  his 
fruit,  it  does  not  allow  him  to  pack  it,  it  does  not  allow  him  to  ship  it, 
or  to  say  when  it  shall  be  sold,  or  at  what  price,  or  anything  of  the 
kind.  They  voluntarily  get  together  and  give  the  association  the 
authority  to  do  all  that  for  them,  and  then  they  abide  by  it.  They 
have  made  it  a  success,  and  those  orchards  alone  are  worth  from  $1000 
to  $5000  an  acre. 

You  come  to  the  wheat  belt  of  the  Central  West,  and  they  have 
their  elevators  that  are  owned  by  the  farmers  —  some  1400  of  them  — 
and  they  have,  of  course,  as  a  purpose  the  regulating  of  the  wheat  to 
the  market  in  a  way  that  they  will  get  better  prices  than  if  they  auction 
it  off  from  the  thrasher,  as  they  used  to  do.  If  those  elevators  decide 
to  be  in  one  State,  or  get  together  under  one  corporation  or  one  man- 
agement in  order  to  regulate  that  price  for  the  market,  your  law, 
intended  to  apply  to  other  corporations,  might  apply  to  them.  I 
think  you  had  that  in  view  in  writing  the  law.  The  last  development 
of  that  wheat-elevator  system  of  marketing  grain  is  along  the  line  of 
compelling  those  who  are  members  of  the  exchange  association  to  do 
just  as  these  fruit  men  have  done  in  California,  to  deliver  their  wheat 
to  the  elevator  which  they  own ;  or  else,  if  they  sell  it  otherwise,  to 
pay  the  same  commission  that  they  would  have  to  pay  if  the  elevator 
handled  it,  and  that  enables  them  to  compete  with  the  old-line  eleva- 
tors, which  they  were  not  able  to  do  otherwise,  because  the  old-line 
elevators  were  getting  higher  prices  than  the  market  would  justify  for 
wheat  where  the  farmers'  elevator  was  established  until  they  put  it  out 
of  business.  That  is  the  means  that  they  are  applying  there  to  obviate 
that  difficulty. 

When  we  come  down  to  the  cotton  belt,  with  which  I  am  more 
familiar  than  any  of  these  others  that  I  mave  mentioned.  The  farmers 
of  the  South,  in  the  last  seven  years,  have  built  some  1600  cotton 
warehouses,  with  the  avowed  purpose  of  storing  their  cotton  in  those 
warehouses  and  selling  it  gradually  through  the  year  instead  of  fore- 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    629 

ing  it  on  the  market  in  the  fall  faster  than  consumption  could  use  it. 
These  local  warehouses  are  small  companies,  and  as  a  matter  of 
course  have  but  little  financial  connections  that  can  float  loans  on  the 
cotton  that  they  have  stored  when  cotton  is  what  we  call  "distressed," 
or  when  the  people  who  produce  it  have  to  have  money  to  pay  their 
debts  and  cannot  wait  to  sell  it. 

Now,  that  naturally  drove  these  warehouses  to  consider  the  propo- 
sition of  consolidating.  Take,  as  an  illustration,  Mississippi.  AH  the 
warehouses  in  Mississippi  are  swung  together  in  one  corporation, 
capitalized  for  a  million  dollars.  They  sell  through  one  agent  and  have 
one  central  ofhce.  The  cotton  is  stored  in  the  warehouses.  It  is 
simply  sent  to  a  central  ofhce,  and  an  expert  grader  and  classifier 
makes  a  record  of  the  cotton,  its  quality,  staple,  spinning  qualities, 
etc.,  and  that  office  is  in  position  to  fill  any  order  from  any  mill  by 
cable  or  otherwise  at  any  time  of  the  year  by  having  all  of  these  ware- 
houses to  draw  from,  and  it  gives  it  financial  connections  that  enable 
it  to  borrow  money  for  those  farmers  that  are  in  debt,  and  need  their 
money  in  the  fall. 

Now,  as  to  whether  that  could  be  construed  to  be  in  restraint  of 
trade  I  am  not  here  to  say,  but  it  is  my  purpose,  in  representing  this 
organization,  to  present  this  condition  to  you  in  order  that  you  may 
have  it  fully  in  mind  in  writing  a  law,  or  in  writing  an  amendment  to 
the  law,  as  it  now  is.  .  .  . 


The  Chairman.  Now  so  far  as  you  have  developed  this  thought, 
and  studied  the  situation,  state  as  concretely  as  you  can  —  and  of 
course  sufficiently  full  to  cover  the  subject  —  what  you  think  the  law 
ought  to  allow  —  I  am  speaking  now  with  reference  to  the  limitations 
of  the  Sherman  antitrust  law. 

Mr.  Brooks.  Well,  that  would  be  rather  difl&cult  to  answer  unless 
I  were  a  lawyer,  which  I  am  not. 

The  Chairman.  I  am  not  speaking  of  the  legal  aspect  of  it  at  all. 
Just  ignore  that. 

Mr.  Brooks.  Well,  we  wish  to  be  allowed  to  continue  our  system 
of  organizing  the  farmer  and  getting  him  to  build  his  own  warehouses, 
store  his  own  cotton,  and  combine  those  warehouses  and  sell  through 
one  agent  to  the  mills.  We  wish  to  have  him  allowed  full  rein  in 
perfecting  that  system,  and  its  operation. 

The  Chairman.  Well,  that  is  pretty  broad.  Do  you  include  in 
that  the  proposition  of  turning  this  cotton  over  to  one  man,  or  one 
set  of  men,  to  determine  when  it  shall  be  sold? 

Mr.  Brooks.   Yes,  sir. 

The  Chairman.  That  is  what  you  would  have  if  you  could  have 
your  way? 


630  EXCERPTS   FROM  TESTIMONY   BEFORE 

Mr.  Brooks.  Yes,  sir ;  if  he  could  not  determine  when  to  sell,  the 
regulation  could  not  be  effective  because  there  would  be  such  a  per 
cent  of  the  people  in  the  South,  including  the  negro,  who  w^ould  be 
determined  to  have  their  money  right  now,  that  it  would  force  it  on 
the  market  unless  he  could  restrain  it  from  going  on  the  market  as 
fast  as  the  grower  wanted  to  deliver. 

The  Chairman.  There  are  one  or  two  views  here  that  I  do  not  seem 
to  be  able  to  make  plain  in  my  attempt  to  lay  them  before  you.  One 
is  a  plan  whereby  the  cotton  grower  can  in  a  manner  adjust  the  credit 
of  all  so  that  the  individual  cotton  grower,  if  he  is  in  a  financial  stress, 
can  the  more  readily  get  the  money  to  carry  his  crop.  That  is  one 
thing.     That,  I  understand,  is  practically  what  the  present  effort  is. 

Mr.  Brooks.   Yes,  sir. 

The  Chairman.  Now,  the  other  involves  an  agreement  by  the 
cotton  growers  that  they  will  turn  over  their  cotton,  and  turn  over 
to  some  man  or  set  of  men  the  power  to  say  when  that  cotton  shall 
be  sold ;  that  is,  at  what  price  it  shall  be  sold.  That  is  another 
proposition. 

Mr.  Brooks.   Yes,  sir. 

The  Chairman.   Would  you  go  as  far  as  that? 

Mr.  Brooks.  Yes,  sir ;  we  go  that  far  for  this  reason,  that  while  the 
borrower  might  take  that  money  that  was  advanced  to  him  and  go 
ahead  and  liquidate  his  debts  and  buy  the  necessaries  of  life,  he  is  not 
in  a  position  to  keep  up  with  the  markets  of  the  world  and  know- 
when  would  be  the  proper  time  for  that  cotton  to  really  go  on  the 
market,  while  those  that  he  has  employed  to  do  this  for  him,  to  sell 
his  cotton  for  him,  are  in  a  position  to  know  and  would  be  the  proper 
ones  to  say  how  they  would  sell  this  week  or  this  month.  For  in- 
stance, it  \vi\\  come  dow'n  to  a  system  like  this :  We  will  sell  one- 
twelfth  of  this  cotton  each  30  days ;  we  won't  sell  any  faster  or  any 
slower  than  that  —  I  am  merely  taking  that  as  an  illustration  —  in 
order  to  find  the  market  as  consumption  demands.  If  you  crowd  the 
market  or  choke  the  market  you  depress  the  price  unnaturally,  and 
we  are  trying  simply  to  follow  the  normal  operation  of  the  law  of  supply 
and  demand.  The  farmer  is  the  only  man  in  all  history  that  has  never 
been  able  to  tell  w^hat  he  is  worth.  The  man  w^ho  sells  dry  goods 
prices  them  to  the  consumer.  The  man  w^ho  waits  on  you  when  you 
are  sick  always  tells  you  what  his  services  are  worth  and  you  have 
to  pay  for  them.  The  lawyer  when  he  pleads  your  case  tells  you 
what  his  services  are  worth  and  you  have  to  pay  him.  The  railroads 
tell  you  w'hat  you  must  pay  for  your  tickets.  The  Government  tells 
what  it  pays  you  people  to  come  here  and  make  laws  for  us  and  you 
know  beforehand.  You  are  not  subject  to  competition  by  the  lowest 
bidder.  The  bootblack  will  tell  you  what  you  must  pay  him  for 
blacking  your  shoes.     The  school-teacher  tells  what  he  requires  to 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    631 

teach  the  children.  Everybody  is  allowed  to  tell  you  what  he  is 
worth  but  the  farmer. 

The  Chairman.  You  are  making  that  too  broad.  A  school-teacher 
does  not  fix  his  wages.  As  to  the  railroads  you  are  right,  and  as  to 
these  greater  industries  you  are  undoubtedly  right. 

Mr.  Brooks.  I  will  say  this,  the  teachers,  in  their  attention  to 
legislative  matters,  are  having  a  good  deal  to  do  with  saying  how 
much  wages  shall  be  paid  to  them.  While  it  seems  right  for  almost 
every  person,  and  I  would  say  in  a  sense  even  day  laborers,  to  combine 
and  say  for  how  much  they  will  work  per  day  or  per  job,  yet  the 
farmer  has  always  got  to  walk  up  to  a  customer  and  say,  "What  will 
you  give,  and  what  will  you  take?"     It  is  an  unjust  exception. 

Senator  Pomerene.  I  think  there  are  some  witnesses  around  this 
table  who  know  that  they  have  to  pay  for  their  butter  and  eggs  what 
the  farmer  demands. 

Mr.  Brooks.   Oh,  no,  Senator  — 

The  Chairman.    No  ;  they  do  not.     I  beg  the  Senator's  pardon. 

Mr.  Brooks.  No  ;  they  do  not.  The  farmer  always  asks  somebody 
what  they  will  give  him  for  his  butter  and  eggs,  and  then  that  party 
turns  around  and  tells  you  what  you  must  pay  him  for  them. 

Senator  Oliver.  I  think  other  men  in  other  lines  of  business  have 
tlie  same  experience  in  having  to  sell  their  commodities  for  whatever 
the  customer  will  give. 

The  Chairman.  Now,  getting  back  to  the  original  proposition,  of 
course  you  realize  that  the  Sherman  antitrust  law  was  designed  to 
protect  the  public  from  the  imposition  which  human  nature  is  prone 
to  exercise  when  it  has  the  arbitrary  power  to  fix  prices? 

Mr.  Brooks.    Yes ;   I  understand  that. 

The  Chairman.  Now,  while  there  is  a  vast  diflference  in  their 
capacity  to  control  the  situation  between  the  steel  people,  we  will 
say,  and  the  farmer,  yet  would  you  consent  to  a  law  which  would 
permit  all  the  steel  producers  to  turn  over  to  one  man  or  set  of  men 
the  power  to  say  when  the  steel  should  be  sold  to  the  public? 

Mr.  Brooks.  There  is  no  comparison,  for  this  reason :  Steel  is  a 
product  that  comes  every  day  in  the  year.  There  is  no  periodic  pro- 
duction, and  you  do  not  know  the  amount  of  production  as  compared 
to  the  amount  of  consumption  that  exists  in  any  one  year. 

The  Chairman.  The  effect  on  the  consumer  would  be  precisely  the 
same,  would  it  not  ? 

Mr.  Brooks.   I  think  not,  because  — 

The  Chairman.  If  one  man  could  fix  the  price  at  which  all  steel 
products  should  be  sold  and  just  how  they  should  be  put  out  to  the 
market  from  time  to  time,  it  would  put  the  consumer  of  steel  at  the 
absolute  mercy  of  that  individual,  would  it  not? 

Mr.  Brooks.   Yes,  sir ;   I  would  say  it  would. 


632  EXCERPTS    FROM  TESTIMONY   BEFORE 

The  Chairman.   That  principle  is  the  same,  then? 

Mr.  Brooks.  The  principle  is  not  the  same  in  this  respect :  There 
are,  I  will  say,  15,000,000  bales  of  cotton  that  have  been  produced,  and 
that  15,000,000  bales  are  going  to  be  followed  by  another  15,000,000 
in  another  twelve  months.  That  15,000,000  bales  can  go  on  the 
market  within  that  twelve  months.  Now,  the  thing  for  the  central 
office,  representing  the  farmers  who  grow  it,  to  do  is  to  regulate  that 
by  the  week  until  the  year  is  out  and  finally  market  it,  every  bit  in  a 
given  time.     You  could  not  apply  that  principle  to  the  steel  industry. 

The  Chairman.  Undoubtedly  you  are  right  as  to  that,  provided 
each  farmer  does  that.  .  .  .  Do  you  think  it  right  to  allow  all  the 
producers  of  coal  in  this  country,  either  soft  or  hard  coal,  to  turn  it 
over  to  one  man  to  say  when  that  coal  shall  be  delivered  and  what 
price  it  should  bring? 

Mr.  Brooks.  No,  sir ;  I  do  not  think  it  would  be  right  to  do  that, 
because  that  coal  can  be  limited  in  production  and  limited  in  output 
so  as  to  charge  an  exorbitant  price  for  it,  or  to  charge  an  exorbi- 
tant profit,  but  if  there  were  a  certain  number  of  tons  demanded 
each  year,  and  a  certain  number  of  tons  produced  each  year,  it  would 
not  be  wrong  to  allow  them  to  market  one  fifty-second  of  it  a  week, 
one- twelfth  of  it  a  month,  and  let  the  market  determine  the  price. 


Senator  Cummins.  Take  the  California  Fruit  Exchange  for  an 
example.  There  the  fruit  grower,  the  man  who  owns  the  trees  and 
produces  the  fruit,  agrees  absolutely  to  sell  his  products  to  the  local 
association  ? 

Mr.  Brooks.   Yes,  sir. 

Senator  Cummins.  And  the  local  association  agrees  absolutely  to 
deliver  it  to  the  district  exchange? 

Mr.  Brooks.   Yes,  sir. 

Senator  Cummins.  And  likewise  the  district  exchange  agrees  abso- 
lutely to  deliver  it  to  the  California  Fruit  Exchange? 

Mr.  Brooks.   Yes,  sir. 

Senator  Cummins.  And  the  California  Fruit  Exchange,  being  in 
that  way  in  possession  of  all  of  the  citrus  fruits  in  California,  fixes  the 
price  at  which  those  fruits  shall  be  sold  absolutely,  does  it  not? 

Mr.  Brooks.  I  would  not  go  quite  that  far.  It  affects  the  prices, 
of  course,  very  materially,  but,  of  course,  the  amount  that  is  pro- 
duced in  other  parts  of  the  world  and  the  demand  for  those  goods 
would  have  a  great  deal  to  do  with  those  prices. 

Senator  Cummins.  I  assume  it  has  to  meet  the  competition  of  for- 
eign countries,  and  possibly  Arizona  and  Florida ;  but  so  far  as  any- 
one in  California  can  fix  the  price,  the  California  Fruit  Exchange 
absolutely  fixes  it  ? 


SENATE  COMMITTEE  ON  INTERSTATE  COMMERCE    633 

Mr.  Brooks.   Yes,  sir. 

Senator  Cummins.  Do  you  want  the  law  so  amended  that  what 
the  California  Fruit  Exchange  does  can  be  reproduced  in  every  other 
agricultural  or  horticultural  product? 

Mr.  Brooks.  I  do  not  know  that  the  law  interferes  with  it  at  pres- 
ent, and  I  would  not  want  the  law  amended  so  that  it  would  prevent 
those  people  from  doing  as  they  are  doing. 

Senator  Cumaons.    Now,  assuming  that  the  law  does  prevent  just 
that  sort  of  organization  —  and  I  do  not  say  whether  it  does  or  not  — 
you  want  it  amended  or  changed  so  that  it  will  not  prohibit  it? 
Mr.  Brooks.   Yes,  sir  ;  I  do. 

Senator  Cummins.  With  respect  to  elevators,  the  farmer  who 
enters  a  cooperative  company  agrees  absolutely  to  sell  his  grain  through 
that  company,  does  he  not? 

Mr.  Brooks.  If  it  is  a  genuinely  cooperative  elevator,  he  does,  or 
if  he  sells  outside  of  that  company  he  pays  the  same  commission  as  if 
he  had. 

Senator  Cummins.   But  he  really  agrees  that  he  will  market  his 
grain  through  that  elevator.     Now,  as  to  the  cooperative  company, 
does  it  bargain  with  the  farmer  in  respect  to  the  price? 
Mr.  Brooks.   No,  sir. 

Senator  Cummins.  Or  does  the  cooperative  elevator  company  fix 
the  price  ? 

Mr.  Brooks.  It  sells  wheat  at  the  best  possible  price  and  gives  it 
to  the  farmer. 

Senator  Cummins.   And  then  accounts  to  the  farmer  for  the  amount 
that  it  has  received  for  his  grain? 
Mr.  Brooks.   Yes,  sir. 

Senator  CuMivnNS.  But  the  farmer  has  nothing  whatever  to  do 
with  the  fixing  of  the  price  ? 

Mr.  Brooks.  No,  sir ;  that  is  fixed  by  the  demand,  or  the  prices 
they  can  get  for  it. 

Senator  Cummins.  By  the  act,  whatever  it  may  be,  of  the  elevator 
company.  The  co5perative  company  bargains  with  whomsoever  it 
sells  the  grain  to  and  gets  the  best  price  it  can? 

Mr.  Brooks.   Yes,  sir ;   just  like  any  other  company. 
Senator  Cummins.   And  you  want  the  cotton  business  to  reach 
finally  the  same  condition? 

Mr.  Brooks.  Yes,  sir ;  that  is  the  wish  of  the  farmers  who  raise 
cotton. 

Senator  Cummins.  Do  you  believe  that  it  will  be  wise  if  the  entire 
wheat-growing  region  should  finally  be  combined  in  a  single  company 
that  would  market  the  grain  of  the  whole  country? 

Mr.  Brooks.  It  is  not  so  much  the  power  that  one  possesses  as 
how  it  is  exercised.     Any  law  should  be  equal  in  its  application  to 


634  EXCERPTS   FROM  TESTIMONY 

the  different  classes  of  people.  It  should  not  exempt  a  farmer  merely 
because  he  is  a  farmer  any  more  than  any  other  class.  In  case  such 
a  thing  became  possible  that  the  farmers'  organization  produced  such 
a  power  that  it  coerced  and  extorted  from  the  public,  it  is  not  to  be 
excused  any  more  than  any  other  trust. 

Senator  Cummins.  But  you  would  make  its  validity  or  legality 
dependent  upon  the  use  of  the  power  that  it  might  have  rather  than 
upon  the  mere  possession  of  the  power? 

Mr.  Brooks.  Yes,  sir ;  I  think  the  history  of  the  farmer  has  been 
such  that  it  ought  not  to  alarm  anybody  to  think  that  he  is  going  to 
exercise  that  power  to  extort  from  the  world  —  at  least  he  has  not' 
been  doing  it  for  6000  years. 

Senator  Cummins.  However,  you  desire  the  farmer  to  be  at  liberty 
with  respect  to  every  product  of  the  soil  to  enter  into  an  arrangement 
of  that  sort? 

Mr.  Brooks.  He  should  be  allowed  to  scientifically  market  his 
crops  just  as  any  other  commercial  firm  can  market,  according  to  the 
best  advantages,  and  do  it  legitimately. 

Senator  Cummins.  I  am  coming  to  that  in  a  moment,  but  I  want 
to  get  it  clearly  on  the  record  what  you  want.  You  want  the  farmer 
to  have  the  pri\^lege  of  making  this  consolidation  or  arrangement 
for  every  product,  practically,  as  the  California  Fruit  Exchange  has 
made  the  arrangement  for  the  marketing  of  the  citrus  fruits  of 
California? 

Mr.  Brooks.    Practically,  yes,  sir. 

Senator  Cummins.   Nearly  all  those  products  are  annual? 

Mr.  Brooks.   Yes,  sir. 

Senator  Cummins.  And  it  is  necessary  for  the  man  who  produces 
them  to  sell  one  crop  before  another  is  produced? 

Mr.  Brooks.  Precisely,  and  that  is  the  Une  of  distinction  between 
the  farmers'  products  and  the  output  of  the  steel  mills  and  the  coal 
fields,  etc. 

:(:  Hi  *  ^  *  H=  * 

Senator  Cummins.  *  *  *  So  that  nature  itself  intervenes  be- 
tween such  organizations  and  any  injury  to  the  public,  and  I  take 
it  that  is  your  view  of  it. 

Mr.  Brooks.   Yes,  sir. 

Senator  Cummins.  But  while  such  an  organization  might  for  one 
month  or  two  months  create  a  scarcity  in  the  market  and  in  that  way 
affect  the  price  for  that  period,  yet  that  would  be  followed  necessarily 
by  such  a  glut  on  the  market  as  to  correct  any  e\n.\  of  the  sort? 

Mr.  Brooks.  Yes,  sir ;  the  violation  of  the  law  of  supply  and  de- 
mand would  bring  its  own  retribution. 


IX 

RECENT    FEDERAL    LEGISLATION    PERTAINING 
TO   FEDERAL    CONTROL    OF   INDUSTRY 

AN  ACT  TO  CREATE  A  FEDERAL  TRADE  COMMISSION, 

TO   DEFINE   ITS    POWERS   AND   DUTIES,   AND    FOR 

OTHER   PURPOSES 

H.  R.   15613 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  a  commission  is  hereby 
created  and  established,  to  be  known  as  the  Federal  Trade  Commis- 
sion (hereinafter  referred  to  as  the  commission),  which  shall  be  com- 
posed of  five  commissioners,  who  shall  be  appointed  by  the  President, 
by  and  with  the  advice  and  consent  of  the  Senate.  Not  more  than 
three  of  the  commissioners  shall  be  members  of  the  same  political 
party.  The  first  commissioners  appointed  shall  continue  in  office 
for  terms  of  three,  four,  five,  six,  and  seven  years,  respectively,  from 
the  date  of  the  taking  effect  of  this  Act,  the  term  of  each  to  be  desig- 
nated by  the  President,  but  their  successors  shall  be  appointed  for 
terms  of  seven  years,  except  that  any  person  chosen  to  fill  a  vacancy 
shall  be  appointed  only  for  the  unexpired  term  of  the  commissioner 
whom  he  shall  succeed.  The  commission  shall  choose  a  chairman 
from  its  own  membership.  No  commissioner  shall  engage  in  any 
other  business,  vocation,  or  employment.  Any  commissioner  may 
be  removed  by  the  President  for  inefficiency,  neglect  of  duty,  or  mal- 
feasance in  office.  A  vacancy  in  the  commission  shall  not  impair 
the  right  of  the  remaining  commissioners  to  exercise  all  the  powers 
of  the  commission. 

The  commission  shall  have  an  official  seal,  which  shall  be  judicially 
noticed. 

Section  2.  That  each  commissioner  shall  receive  a  salary  of  $10,000 
a  year,  payable  in  the  same  manner  as  the  salaries  of  the  judges  of  the 
courts  of  the  United  States.     The  commission  shall  appoint  a  secre- 

63s 


636      RECENT  FEDERAL  LEGISLATION  PERTAINING 

tary,  who  shall  receive  a  salary  of  $5000  a  year,  payable  in  like  man- 
ner, and  it  shall  have  authority  to  employ  and  fix  the  compensation 
of  such  attorneys,  special  experts,  examiners,  clerks,  and  other  em- 
ployees as  it  may  from  time  to  time  find  necessary  for  the  proper 
performance  of  its  duties  and  as  may  be  from  time  to  time  appro- 
priated for  by  Congress. 

With  the  exception  of  the  secretary,  a  clerk  to  each  commissioner, 
the  attorneys,  and  such  special  experts  and  examiners  as  the  com- 
mission may  from  time  to  time  find  necessary  for  the  conduct  of  its 
work,  all  employees  of  the  commission  shall  be  a  part  of  the  classified 
civil  service,  and  shall  enter  the  service  under  such  rules  and  regula- 
tions as  may  be  prescribed  by  the  commission  and  by  the  Civil  Service 
Commission. 

All  of  the  expenses  of  the  commission,  including  all  necessary  ex- 
penses for  transportation  incurred  by  the  commissioners  or  by  their 
employees  under  their  orders,  in  making  any  investigation,  or  upon 
official  business  in  any  other  places  than  in  the  city  of  Washington, 
shall  be  allowed  and  paid  on  the  presentation  of  itemized  vouchers 
therefor  approved  by  the  commission. 

Until  otherAvise  provided  by  law,  the  commission  may  rent  suitable 
offices  for  its  use. 

The  Auditor  for  the  State  and  Other  Departments  shall  receive 
and  examine  all  accounts  of  expenditures  of  the  commission. 

Section  3.  That  upon  the  organization  of  the  commission  and  elec- 
tion of  its  chairman,  the  Bureau  of  Corporations  and  the  offices  of 
Commissioner  and  Deputy  Commissioner  of  Corporations  shall  cease 
to  exist ;  and  all  pending  investigations  and  proceedings  of  the  Bureau 
of  Corporations  shall  be  continued  by  the  commission. 

All  clerks  and  employees  of  the  said  bureau  shall  be  transferred  to 
and  become  clerks  and  employees  of  the  commission  at  their  present 
grades  and  salaries.  All  records,  papers,  and  property  of  the  said 
bureau  shall  become  records,  papers,  and  property  of  the  commission, 
and  all  unexpended  funds  and  appropriations  for  the  use  and  main- 
tenance of  the  said  bureau,  including  any  allotment  already  made  to 
it  by  the  Secretary  of  Commerce  from  the  contingent  appropriation 
for  the  Department  of  Commerce  for  the  fiscal  year  nineteen  hundred 
and  fifteen,  or  from  the  departmental  printing  fund  for  the  fiscal 
year  nineteen  hundred  and  fifteen,  shall  become  funds  and  appropria- 
tions available  to  be  expended  by  the  commission  in  the  exercise  of 
the  powers,  authority,  and  duties  conferred  on  it  by  this  Act. 

The  principal  office  of  the  commission  shall  be  in  the  city  of  Wash- 
ington, but  it  may  meet  and  exercise  all  its  powers  at  any  other  place. 
The  commission  may,  by  one  or  more  of  its  members,  or  by  such  ex- 
aminers as  it  may  designate,  prosecute  any  inquiry  necessary  to  its 
duties  in  any  part  of  the  United  States. 


TO  FEDERAL   CONTROL  OF  INDUSTRY  637 

Section  4.  That  the  words  defined  in  this  section  shall  have  the  fol- 
lowing meaning  when  found  in  this  Act,  to  wit : 

"Commerce"  means  commerce  among  the  several  States  or  with 
foreign  nations,  or  in  any  Territory  of  the  United  States  or  in  the 
District  of  Columbia,  or  between  any  such  Territory  and  another, 
or  between  any  such  Territory  and  any  State  or  foreign  nation,  or 
between  the  District  of  Columbia  and  any  State  or  Territory  or  for- 
eign nation. 

"Corporation"  means  any  company  or  association  incorporated  or 
unincorporated,  which  is  organized  to  carry  on  business  for  profit 
and  has  shares  of  capital  or  capital  stock,  and  any  company  or  asso- 
ciation, incorporated  or  unincorporated,  without  shares  of  capital  or 
capital  stock,  except  partnerships,  which  is  organized  to  carry  on 
business  for  its  own  profit  or  that  of  its  members. 

"Documentary  evidence"  means  all  documents,  papers,  and  cor- 
respondence in  existence  at  and  after  the  passage  of  this  Act. 

"Acts  to  regulate  commerce"  means  the  Act  entitled  "An  Act  to 
regulate  commerce,""  approved  February  fourteenth,  eighteen  hun- 
dred and  eighty-seven,  and  all  Acts  amendatory  thereof  and  supple- 
mentary thereto. 

"Antitrust  acts"  means  the  Act  entitled  "An  Act  to  protect  trade 
and  commerce  against  unlawful  restraints  and  monopolies,"  approved 
July  second,  eighteen  hundred  and  ninety ;  also  the  sections  seventy- 
three  to  seventy-seven,  inclusive,  of  an  Act  entitled  "An  Act  to  re- 
duce taxation,  to  provide  revenue  for  the  Government,  and  for  other 
purposes,"  approved  August  twenty-seventh,  eighteen  hundred  and 
ninety-four;  and  also  the  Act  entitled  "An  Act  to  amend  sections 
seventy-three  and  seventy-six  of  the  Act  of  August  twenty-seventh, 
eighteen  hundred  and  ninety-four,  entitled  'An  Act  to  reduce  taxation, 
to  provide  revenue  for  the  Government,  and  for  other  purposes,'" 
approved  February  twelfth,  nineteen  hundred  and  thirteen. 

Section  5.  That  unfair  methods  of  competition  in  commerce  are 
hereby  declared  unlawful. 

The  commission  is  hereby  empowered  and  directed  to  pre\'ent  per- 
sons, partnerships,  or  corporations,  except  banks,  and  common 
carriers  subject  to  the  Acts  to  regulate  commerce,  from  using  unfair 
methods  of  competition  in  commerce. 

Whenever  the  commission  shall  have  reason  to  believe  that  any 
such  person,  partnership,  or  corporation  has  been  or  is  using  any 
unfair  method  of  competition  in  commerce,  and  if  it  shall  appear  to 
the  commission  that  a  proceeding  by  it  in  respect  thereof  would  be 
to  the  interest  of  the  public,  it  shall  issue  and  serve  upon  such  person, 
partnership,  or  corporation  a  complaint  stating  its  charges  in  that 
respect,  and  containing  a  notice  of  a  hearing  upon  a  day  and  at  a 
place   therein  fixed  at   least  thirty  days  after   the  service   of  said 


638      RECENT   FEDERAL  LEGISLATION  PERTAINING 

complaint.  The  person,  partnership,  or  corporation  so  complained  of 
shall  have  the  right  to  appear  at  the  place  and  time  so  fixed  and  show 
cause  why  an  orcler  should  not  be  entered  by  the  commission  requiring 
such  person,  partnership,  or  corporation  to  cease  and  desist  from  the 
violation  of  the  law  so  charged  in  said  complaint.  Any  person, 
partnership,  or  corporation  may  make  application,  and  upon  good 
cause  shown  may  be  allowed  by  the  commission,  to  intervene  and 
appear  in  said  proceeding  by  counsel  or  in  person.  The  testimony 
in  any  such  proceeding  shall  be  reduced  to  writing  and  filed  in  the 
office  of  the  commission.  If  upon  such  hearing  the  commission  shall 
be  of  the  opinion  that  the  method  of  competition  in  question  is  pro- 
hibited by  this  Act,  it  shall  make  a  report  in  writing  in  which  it  shall 
state  its  findings  as  to  the  facts,  and  shall  issue  and  cause  to  be  served 
on  such  person,  partnership,  or  corporation  an  order  requiring  such 
person,  partnership,  or  corporation  to  cease  and  desist  from  using 
such  method  of  competition.  Until  a  transcript  of  the  record  in  such 
hearing  shall  have  been  filed  in  a  circuit  court  of  appeals  of  the  United 
States,  as  hereinafter  provided,  the  commission'  may  at  any  time, 
upon  such  notice  and  in  such  manner  as  it  shall  deem  proper,  modify 
or  set  aside,  in  whole  or  in  part,  any  report  or  any  order  made  or  issued 
by  it  under  this  section. 

If  such  person,  partnership,  or  corporation  fails  or  neglects  to  obey 
such  order  of  the  commission  while  the  same  is  in  effect,  the  commis- 
sion may  apply  to  the  circuit  court  of  appeals  of  the  United  States, 
within  any  circuit  where  the  method  of  competition  in  question  w^as 
used  or  where  such  person,  partnership,  or  corporation  resides  or 
carries  on  business,  for  the  enforcement  of  its  order,  and  shall  certify 
and  file  with  its  application  a  transcript  of  the  entire  record  in  the 
proceeding,  including  all  the  testimony  taken  and  the  report  and  order 
of  the  commission.  Upon  such  filing  of  the  application  and  transcript 
the  court  shall  cause  notice  thereof  to  be  served  upon  such  person, 
partnership,  or  corporation  and  thereupon  shall  have  jurisdiction  of 
the  proceeding  and  of  the  question  determined  therein,  and  shall  have 
power  to  make  and  enter  upon  the  pleadings,  testimony,  and  proceed- 
ings set  forth  in  such  transcript  a  decree  affirming,  modifying,  or 
setting  aside  the  order  of  the  commission.  The  findings  of  the  com- 
mission as  to  the  facts,  if  supported  by  testimony,  shall  be  conclusive. 
If  either  party  shall  apply  to  the  court  for  leave  to  adduce  additional 
evidence,  and  shall  show  to  the  satisfaction  of  the  court  that  such 
additional  evidence  is  material  and  that  there  were  reasonable  grounds 
for  the  failure  to  adduce  such  evidence  in  the  proceeding  before  the 
commission,  the  court  may  order  such  additional  evidence  to  be  taken 
before  the  commission  and  to  be  adduced  upon  the  hearing  in  such 
manner  and  upon  such  terms  and  conditions  as  to  the  court  may 
seem  proper.     The  commission  may  modify  its  findings  as  to  the 


TO  FEDERAL  CONTROL  OF  INDUSTRY  639 

facts,  or  make  new  findings,  by  reason  of  the  additional  evidence  so 
taken,  and  it  shall  file  such  modified  or  new  findings,  which,  if  sup- 
ported by  testimony,  shall  be  conclusive,  and  its  recommendation,  if 
any,  for  the  modification  or  setting  aside  of  its  original  order,  with 
the  return  of  such  additional  evidence.  The  judgment  and  decree 
of  the  court  shall  be  final,  except  that  the  same  shall  be  subject  to 
review  by  the  Supreme  Court  upon  certiorari  as  provided  in  section 
two  hundred  and  forty  of  the  Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  to  cease  and 
desist  from  using  such  method  of  competition  may  obtain  a  review 
of  such  order  in  said  circuit  court  of  appeals  by  filing  in  the  court  a 
written  petition  pra}dng  that  the  order  of  the  commission  be  set  aside. 
A  copy  of  such  petition  shall  be  forthwith  served  upon  the  commis- 
sion, and  thereupon  the  commission  forthwith  shall  certify  and  file  in 
the  court  a  transcript  of  the  record  as  hereinbefore  provided.  Upon 
the  fihng  of  the  transcript  the  court  shall  have  the  same  jurisdiction  to 
affirm,  set  aside,  or  modify  the  order  of  the  commission  as  in  the  case 
of  an  application  by  the  commission  for  the  enforcement  of  its  order, 
and  the  findings  of  the  commission  as  to  the  facts,  if  supported  by 
testimony,  shall  in  like  manner  be  conclusive. 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the  United  States 
to  enforce,  set  aside,  or  modify  orders  of  the  commission  shall  be 
exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be  given  pre- 
cedence over  other  cases  pending  therein,  and  shall  be  in  every  way 
expedited.  No  order  of  the  commission  or  judgment  of  the  court  to 
enforce  the  same  shall  in  any  wise  relieve  or  absolve  any  person, 
partnership,  or  corporation  from  any  liability  under  the  antitrust  acts. 

Complaints,  orders,  and  other  processes  of  the  commission  under 
this  section  may  be  served  by  anyone  duly  authorized  by  the  com- 
mission, either  (a)  by  delivering  a  copy  thereof  to  the  person  to  be 
served,  or  to  a  member  of  the  partnership  to  be  served,  or  to  the 
president,  secretary,  or  other  executive  ofiicer  or  a  director  of  the  cor- 
poration to  be  served ;  or  (b)  by  leaving  a  copy  thereof  at  the 
principal  ofiice  or  place  of  business  of  such  person,  partnership,  or  cor- 
poration ;  or  (c)  by  registering  and  mailing  a  copy  thereof  addressed 
to  such  person,  partnership,  or  corporation  at  his  or  its  principal  office 
or  place  of  business.  The  verified  return  by  the  person  so  serving 
said  complaint,  order,  or  other  process  setting  forth  the  manner  of 
said  service  shall  be  proof  of  the  same,  and  the  return  post-office 
receipt  for  said  complaint,  order,  or  other  process  registered  and 
mailed  as  aforesaid  shall  be  proof  of  the  service  of  the  same. 

Section  6.   That  the  commission  shall  also  have  power  — 

(a)  To  gather  and  compile  information  concerning,  and  to  investi- 
gate from  time  to  time  the  organization,  business,  conduct,  practices, 


640      RECENT  FEDERAL  LEGISLATION  PERTAINING 

and  management  of  any  corporation  engaged  in  commerce,  excepting 
banks  and  common  carriers  subject  to  the  Act  to  regulate  commerce, 
and  its  relation  to  other  corporations  and  to  individuals,  associations, 
and  partnerships. 

(b)  To  recjuire,  by  general  or  special  orders,  corporations  engaged 
in  commerce,  excepting  banks,  and  common  carriers  subject  to  the 
Act  to  regulate  commerce,  or  any  class  of  them,  or  any  of  them,  re- 
spectively, to  file  with  the  commission  in  such  form  as  the  commis- , 
sion  may  prescribe  annual  or  special,  or  both  annual  and  special, 
reports  or  answers  in  writing  to  specific  questions,  furnishing  to  the 
commission  such  information  as  it  may  require  as  to  the  organization, 
business,  conduct,  practices,  management,  and  relation  to  other  cor- 
porations, partnerships,  and  individuals  of  the  respective  corpora- 
tions filing  such  reports  or  answers  in  writing.  Such  reports  and 
answers  shall  be  made  under  oath,  or  otherwise,  as  the  commission 
may  prescribe,  and  shall  be  filed  with  the  commission  within  such 
reasonable  period  as  the  commission  may  prescribe,  unless  additional 
time  be  granted  in  any  case  by  the  commission. 

(c)  Whenever  a  final  decree  has  been  entered  against  any  defendant 
corporation  in  any  suit  brought  by  the  United  States  to  prevent  and 
restrain  any  violation  of  the  antitrust  Acts,  to  make  investigation, 
upon  its  own  initiative,  of  the  manner  in  which  the  decree  has  been 
or  is  being  carried  out,  and  upon  the  application  of  the  Attorney 
General  it  shall  be  its  duty  to  make  such  investigation.  It  shall 
transmit  to  the  Attorney  General  a  report  embodying  its  findings  and 
recommendations  as  a  result  of  any  such  investigation,  and  the  report 
shall  be  made  public  in  the  discretion  of  the  commission. 

(d)  Upon  the  direction  of  the  President  or  either  House  of  Congress 
to  investigate  and  report  the  facts  relating  to  any  alleged  \iolations 
of  the  antitrust  Acts  by  any  corporation. 

(c)  Upon  the  application  of  the  Attorney  General  to  investigate  and 
make  recommendations  for  the  readjustment  of  the  business  of  any 
corporation  alleged  to  be  violating  the  antitrust  Acts  in  order  that  the 
corporation  may  thereafter  maintain  its  organization,  management, 
and  conduct  of  business  in  accordance  with  law. 

(/)  To  make  public  from  time  to  time  such  portions  of  the  informa- 
tion obtained  by  it  hereunder,  except  trade  secrets  and  names  of  cus- 
tomers, as  it  shall  deem  expedient  in  the  public  interest ;  and  to  make 
annual  and  special  reports  to  the  Congress  and  to  submit  therewith 
recommendations  for  additional  legislation ;  and  to  provide  for  the 
publication  of  its  reports  and  decisions  in  such  form  and  manner  as 
may  be  best  adapted  for  public  information  and  use. 

(g)  From  time  to  time  to  classify  corporations  and  to  make  rules 
and  regulations  for  the  purpose  of  carrying  out  the  provisions  of  this 
Act. 


TO  FEDERAL  CONTROL  OF  INDUSTRY  641 

(//)  To  investigate,  from  time  to  time,  trade  conditions  in  and  with 
foreign  countries  where  associations,  combinations,  or  practices  of 
manufacturers,  merchants,  or  traders,  or  other  conditions,  may  affect 
the  foreign  trade  of  the  United  States,  and  to  report  to  Congress 
thereon,  with  such  recommendations  as  it  deems  advisable. 

Section  7.  That  in  any  suit  in  equity  brought  by  or  under  the  direc- 
tion of  the  Attorney  General  as  provided  in  the  antitrust  Acts,  the 
court  may,  upon  the  conclusion  of  the  testimony  therein,  if  it  shall  be 
then  of  opinion  that  the  complainant  is  entitled  to  relief,  refer  said 
suit  to  the  commission,  as  a  master  in  chancery,  to  ascertain  and  re- 
port an  appropriate  form  of  decree  therein.  The  commission  shall 
proceed  upon  such  notice  to  the  parties  and  under  such  rules  of  pro- 
cedure as  the  court  may  prescribe,  and  upon  the  coming  in  of  such  re- 
port such  exceptions  may  be  filed  and  such  proceedings  had  in  relation 
thereto  as  upon  the  report  of  a  master  in  other  equity  causes,  but  the 
court  may  adopt  or  reject  such  report,  in  whole  or  in  part,  and  enter 
such  decree  as  the  nature  of  the  case  may  in  its  judgment  require. 

Section  8.  That  the  several  departments  and  bureaus  of  the  Gov- 
ernment when  directed  by  the  President  shall  furnish  the  commission, 
upon  its  request,  all  records,  papers,  and  information  in  their  posses- 
sion relating  to  any  corporation  subject  to  any  of  the  provisions  of  this 
Act,  and  shall  detail  from  time  to  time  such  officials  and  employees  to 
the  commission  as  he  may  direct. 

Section  9.  That  for  the  purposes  of  this  Act  the  commission,  or  its 
duly  authorized  agent  or  agents,  shall  at  all  reasonable  times  have 
access  to,  for  the  purpose  of  examination,  and  the  right  to  copy  any 
documentary  evidence  of  any  corporation  being  investigated  or  pro- 
ceeded against ;  and  the  commission  shall  have  power  to  require  by 
subpoena  the  attendance  and  testimony  of  witnesses  and  the  produc- 
tion of  all  such  documentary  evidence  relating  to  any  matter  under 
investigation.  Any  member  of  the  commission  may  sign  subpoenas, 
and  members  and  examiners  of  the  commission  may  administer  oaths 
and  affirmations,  examine  witnesses,  and  receive  evidence. 

Such  attendance  of  witnesses,  and  the  production  of  such  docu- 
mentary evidence,  may  be  required  from  any  place  in  the  United 
States,  at  any  designated  place  of  hearing.  And  in  case  of  diso- 
bedience to  a  subpoena  the  commission  may  invoke  the  aid  of  any 
court  of  the  United  States  in  requiring  the  attendance  and  testimony 
of  witnesses  and  the  production  of  documentary  evidence. 

Any  of  the  district  courts  of  the  United  States  within  the  juris- 
diction of  which  such  inquiry  is  carried  on  may,  in  case  of  contumacy 
or  refusal  to  obey  a  subpoena  issued  to  any  corporation  or  other  per- 
son, issue  an  order  requiring  such  corporation  or  other  person  to 
appear  before  the  commission,  or  to  produce  documentary  evidence 
if  so  ordered,  or  to  give  evidence  touching  the  matter  in  question ; 


642      RECENT  FEDERAL  LEGISLATION  PERTAINING 

and  any  failure  to  obey  such  order  of  the  court  may  be  punished  by 
such  court  as  a  contempt  thereof. 

Upon  the  appHcation  of  the  Attorney  General  of  the  United  States, 
at  the  request  of  the  commission,  the  district  courts  of  the  United 
States  shall  have  jurisdiction  to  issue  writs  of  mandamus  commanding 
any  person  or  corporation  to  comply  with  the  provisions  of  this  Act 
or  any  order  of  the  commission  made  in  pursuance  thereof. 

The  commission  may  order  testimony  to  be  taken  by  deposition 
in  any  proceeding  or  investigation  pending  under  this  Act  at  any 
stage  of  such  proceeding  or  investigation.  Such  depositions  may  be 
taken  before  any  person  designated  by  the  commission  and  having 
power  to  administer  oaths.  Such  testimony  shall  be  reduced  to  writ- 
ing by  the  person  taking  the  deposition,  or  under  his  direction,  and 
shall  then  be  subscribed  by  the  deponent.  Any  person  may  be  com- 
pelled to  appear  and  depose  and  to  produce  documentary  evidence  in 
the  same  manner  as  witnesses  may  be  compelled  to  appear  and  testify 
and  produce  documentary  evidence  before  the  commission  as  herein- 
before provided. 

Witnesses  summoned  before  the  commission  shall  be  paid  the  same 
fees  and  mileage  that  are  paid  witnesses  in  the  courts  of  the  United 
States,  and  witnesses  whose  depositions  are  taken  and  the  persons 
taking  the  same  shall  severally  be  entitled  to  the  same  fees  as  are 
paid  for  like  services  in  the  courts  of  the  United  States. 

No  person  shall  be  excused  from  attending  and  testifying  or  from 
producing  documentary  evidence  before  the  commission  or  in  obedi- 
ence to  the  subpoena  of  the  commission  on  the  ground  or  for  the 
reason  that  the  testimony  or  evidence,  documentary  or  otherwise, 
required  of  him  may  tend  to  criminate  him  or  subject  him  to  a  penalty 
or  forfeiture.  But  no  natural  person  shall  be  prosecuted  or  subjected 
to  any  penalty  or  forfeiture  for  or  on  account  of  any  transaction, 
matter,  or  thing  concerning  which  he  may  testify,  or  produce  evi- 
dence, documentary  or  otherwise,  before  the  commission  in  obedience 
to  a  subpoena  issued  by  it :  Provided,  That  no  natural  person  so 
testifying  shall  be  exempt  from  prosecution  and  punishment  for  per- 
jury committed  in  so  testifying. 

Section  10.  That  any  person  who  shall  neglect  or  refuse  to  attend 
and  testify,  or  to  answer  any  lawful  inquiry,  or  to  produce  documen- 
tary evidence,  if  in  his  power  to  do  so,  in  obedience  to  the  subpoena  or 
lawful  requirement  of  the  commission,  shall  be  guilty  of  an  offense 
and  upon  conviction  thereof  by  a  court  of  competent  jurisdiction  shall 
be  punished  by  a  fine  of  not  less  than  $1000  nor  more  than  S5000,  or 
by  imprisonment  for  not  more  than  one  year,  or  by  both  such  fine  and 
imprisonment. 

Any  person  who  shall  willfully  make,  or  cause  to  be  made,  any  false 
entry  or  statement  of  fact  in  any  report  required  to  be  made  under 


TO  FEDERAL  CONTROL  OF  INDUSTRY  643 

this  Act,  or  who  shall  willfully  make,  or  cause  to  be  made,  any  false 
entry  in  any  account,  record,  or  memorandum  kept  by  any  corpora- 
tion subject  to  this  Act,  or  who  shall  wiUfully  neglect  or  fail  to  make, 
or  to  cause  to  be  made,  full,  true,  and  correct  entries  in  such  accounts, 
records,  or  memoranda  of  all  facts  and  transactions  appertaining  to 
the  business  of  such  corporation,  or  who  shall  willfully  remove  out  of 
the  jurisdiction  of  the  United  States,  or  willfully  mutilate,  alter,  or  by 
any  other  means  falsify  any  documentary  evidence  of  such  corpora- 
tion, or  who  shall  willfully  refuse  to  submit  to  the  commission  or  to 
any  of  its  authorized  agents,  for  the  purpose  of  inspection  and  taking 
copies,  any  documentary  evidence  of  such  corporation  in  his  possession 
or  within  his  control,  shall  be  deemed  guilty  of  an  offense  against  the 
United  States,  and  shall  be  subject,  upon  conviction  in  any  court  of 
the  United  States  of  competent  jurisdiction,  to  a  fine  of  not  less  than 
$1000  nor  more  than  $5000,  or  to  imprisonment  for  a  term  of  not 
more  than  three  years,  or  to  both  such  fine  and  imprisonment. 

If  any  corporation  required  by  this  Act  to  file  any  annual  or  special 
report  shall  fail  so  to  do  within  the  time  fixed  by  the  commission  for 
filing  the  same,  and  such  failure  shall  continue  for  thirty  days  after 
notice  of  such  default,  the  corporation  shall  forfeit  to  the  United  States 
the  sum  of  $100  for  each  and  every  day  of  the  continuance  of  such 
failure,  which  forfeiture  shall  be  payable  into  the  Treasury  of  the 
United  States,  and  shall  be  recoverable  in  a  civil  suit  in  the  name  of 
the  United  States  brought  in  the  district  where  the  corporation  has  its 
principal  office  or  in  any  district  in  which  it  shall  do  business.  It 
shall  be  the  duty  of  the  various  district  attorneys,  under  the  direction 
of  the  Attorney  General  of  the  United  States,  to  prosecute  for  the 
recovery  of  forfeitures.  The  costs  and  expenses  of  such  prosecution 
shall  be  paid  out  of  the  appropriation  for  the  expenses  of  the  courts  of 
the  United  States. 

Any  officer  or  employee  of  the  commission  who  shall  make  public 
any  information  obtained  by  the  commission  without  its  authority, 
unless  directed  by  a  court,  shall  be  deemed  guilty  of  a  misdemeanor, 
and,  upon  conviction  thereof,  shall  be  punished  by  a  fine  not  exceed- 
ing $5000,  or  by  imprisonment  not  exceeding  one  year,  or  by  fine  and 
imprisonment,  in  the  discretion  of  the  court. 

Section  i  i  .  Nothing  contained  in  this  Act  shall  be  construed  to  pre- 
vent or  interfere  with  the  enforcement  of  the  provisions  of  the  anti- 
trust Acts  or  the  Acts  to  regulate  commerce,  nor  shall  anything  con- 
tained in  the  Act  be  construed  to  alter,  modify,  or  repeal  the  said 
antitrust  Acts  or  the  Acts  to  regulate  commerce  or  any  part  or  parts 
thereof. 

Approved,  September  26,  1914. 


644      RECENT  FEDERAL  LEGISLATION  PERTAINING 

AN   ACT   TO    SUPPLEMENT    EXISTING    LAWS    AGAINST 

UNLAWFUL   RESTRAINTS   AND    MONOPOLIES, 

AND    FOR   OTHER   PURPOSES 

H.  R.   15657 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  oj  America  in  Congress  assembled,  That  "antitrust  laws,"  as 
used  herein,  includes  the  Act  entitled  "An  Act  to  protect  trade  and 
commerce  against  unlawful  restraints  and  monopolies,"  approved 
July  second,  eighteen  hundred  and  ninety ;  sections  seventy-three 
to  seventy-seven,  inclusive,  of  an  Act  entitled  "An  Act  to  reduce 
taxation,  to  provide  revenue  for  the  Government,  and  for  other  pur- 
poses," of  August  twenty-seventh,  eighteen  hundred  and  ninety- 
four;  an  Act  entitled  "An  Act  to  amend  sections  seventy-three  and 
seventy-six  of  the  Act  of  August  twenty-seventh,  eighteen  hundred 
and  ninety-four,  entitled  'An  Act  to  reduce  taxation,  to  provide 
revenue  for  the  Government,  and  for  other  purposes,'"  approved 
February  twelfth,  nineteen  hundred  and  thirteen ;  and  also  this  Act. 

"Commerce,"  as  used  herein,  means  trade  or  commerce  among  the 
several  States  and  with  foreign  nations,  or  between  the  District  of 
Columbia  or  any  Territory  of  the  United  States  and  any  State, 
Territory,  or  foreign  nation,  or  between  any  insular  possessions  or 
other  places  under  the  jurisdiction  of  the  United  States,  or  between 
any  such  possession  or  place  and  any  State  or  Territory  of  the  United 
States  or  the  District  of  Columbia  or  any  foreign  nation,  or  within 
the  District  of  Columbia  or  any  Territory  or  any  insular  possession 
or  other  place  luider  the  jurisdiction  of  the  United  States :  Provided, 
That  nothing  in  this  Act  contained  shall  apply  to  the  Philippine  Islands. 

The  word  "person"  or  "persons"  wherever  used  in  this  Act  shall 
be  deemed  to  include  corporations  and  associations  existing  under 
or  authorized  by  the  laws  of  either  the  United  States,  the  laws  of  any 
of  the  Territories,  the  laws  of  any  State,  or  the  laws  of  any  foreign 
country. 

Section  2.  That  it  shall  be  unlawful  for  any  person  engaged  in  com- 
merce, in  the  course  of  such  commerce,  either  directly  or  indirectly 
to  discriminate  in  price  between  different  purchasers  of  commodities, 
which  commodities  are  sold  for  use,  consumption,  or  resale  within 
the  United  States  or  any  Territory  thereof  or  the  District  of  Columbia 
or  any  insular  possession  or  other  place  under  the  jurisdiction  of  the 
United  States,  where  the  effect  of  such  discrimination  may  be  to  sub- 
stantially lessen  competition  or  tend  to  create  a  monopoly  in  any 
line  of  commerce:  Provided,  That  nothing  herein  contained  shall 
prevent  discrimination  in  price  between  purchasers  of  commodities 
on  account  of  differences  in  the  grade,  quality,  or  quantity  of  the 


TO  FEDERAL  CONTROL  OF  INDUSTRY     645 

commodity  sold,  or  that  makes  only  due  allowance  for  difference  in 
the  cost  of  selling  or  transportation,  or  discrimination  in  price  in  the 
same  or  different  communities  made  in  good  faith  to  meet  competi- 
tion:  And  provided  further,  That  nothing  herein  contained  shall 
prevent  persons  engaged  in  selling  goods,  wares,  or  merchandise  in 
commerce  from  selecting  their  own  customers  in  bona  fide  transac- 
tions and  not  in  restraint  of  trade. 

Section  3.  That  it  shall  be  unlawful  for  any  person  engaged  in  com- 
merce, in  the  course  of  such  commerce,  to  lease  or  make  a  sale  or 
contract  for  sale  of  goods,  wares,  merchandise,  machinery,  supplies  or 
other  commodities,  whether  patented  or  unpatented,  for  use,  con- 
sumption or  resale  within  the  United  States  or  any  Territory  thereof 
or  the  district  of  Columbia  or  any  insular  possession  or  other  place 
under  the  jurisdiction  of  the  United  States,  or  fix  a  price  charged 
therefor,  or  discount  from,  or  rebate  upon,  such  price,  on  the  condi- 
tion, agreement  or  understanding  that  the  lessee  or  purchaser  thereof 
shall  not  use  or  deal  in  the  goods,  wares,  merchandise,  machinery, 
supplies  or  other  commodities  of  a  competitor  or  competitors  of  the 
lessor  or  seller,  where  the  effect  of  such  lease,  sale,  or  contract  for  sale 
or  such  condition,  agreement  or  understanding  may  be  to  substan- 
tially lessen  competition  or  tend  to  create  a  monopoly  in  any  line  of 
commerce. 

Section  4.  That  any  person  who  shall  be  injured  in  his  business  or 
property  by  reason  of  anything  forbidden  in  the  antitrust  laws  may 
sue  therefor  in  any  district  court  of  the  United  States  in  the  district 
in  which  the  defendant  resides  or  is  found  or  has  an  agent,  without 
respect  to  the  amount  in  controversy,  and  shall  recover  threefold  the 
damages  by  him  sustained,  and  the  cost  of  suit,  including  a  reason- 
able attorney's  fee. 

Section  5.  That  a  final  judgment  or  decree  hereafter  rendered  in 
any  criminal  prosecution  or  in  any  suit  or  proceeding  in  equity  brought 
by  or  on  behalf  of  the  United  States  under  the  antitrust  laws  to  the 
effect  that  a  defendant  has  violated  said  laws  shall  be  prima  facie 
evidence  against  such  defendant  in  any  suit  or  proceeding  brought 
by  any  other  party  against  such  defendant  under  said  laws  as  to  all 
matters  respecting  which  said  judgment  or  decree  would  be  an  estoppel 
as  between  the  parties  thereto :  Provided,  This  section  shall  not  apply 
to  consent  judgments  or  decrees  entered  before  any  testimony  has 
been  taken :  Provided  further.  This  section  shall  not  apply  to  consent 
judgments  or  decrees  rendered  in  criminal  proceedings  or  suits  in 
equity,  now  pending,  in  which  the  taking  of  testimony  has  been  com- 
menced but  has  not  been  concluded,  provided  such  judgments  or 
decrees  are  rendered  before  any  further  testimony  is  taken. 

Whenever  any  suit  or  proceeding  in  equity  or  criminal  prosecution 
is  instituted  by  the  United  States  to  prevent,  restrain  or  punish  vio- 


646     RECENT  FEDERAL  LEGISLATION  PERTAINING 

lations  of  any  of  the  antitrust  laws,  the  running  of  the  statute  of 
limitations  in  respect  of  each  and  every  private  right  of  action  arising 
under  said  laws  and  based  in  whole  or  in  part  on  any  matter  com- 
plained of  in  said  suit  or  proceeding  shall  be  suspended  during  the 
pendency  thereof. 

Section  6.  That  the  labor  of  a  human-being  is  not  a  commodit"- 
or  article  of  commerce.  Nothing  contained  in  the  antitrust  laws  shall 
be  construed  to  forbid  the  existence  and  operation  of  labor,  agricrl- 
tural,  or  horticultural  organizations,  instituted  for  the  purposes  of 
mutual  help,  and  not  having  capital  stock  or  conducted  for  profit,  or 
to  forbid  or  restrain  individual  members  of  such  organizations  from 
lawfully  carrying  out  the  legitimate  objects  thereof ;  nor  shall  such 
organizations,  or  the  members  thereof,  be  held  or  construed  to  be  illegal 
combinations  or  conspiracies  in  restraint  of  trade,  under  the  antitrust 
laws. 

Section  7.  That  no  corporation  engaged  in  commerce  shall  acquire, 
directly  or  indirectly,  the  whole  or  any  part  of  the  stock  or  other  share 
capital  of  another  corporation  engaged  also  in  commerce,  where 
the  effect  of  such  acquisition  may  be  to  substantially  lessen  competi- 
tion between  the  corporation  whose  stock  is  so  acquired  and  the  cor- 
poration making  the  acquisition,  or  to  restrain  such  commerce  in 
any  section  or  community,  or  tend  to  create  a  monopoly  of  any  line  of 
commerce. 

No  corporation  shall  acquire,  directly  or  indirectly,  the  whole  or 
any  part  of  the  stock  or  other  share  capital  of  two  or  more  corporations 
engaged  in  commerce  where  the  effect  of  such  acquisition,  or  the  use 
of  such  stock  by  the  voting  or  granting  of  proxies  or  otherwise,  may 
be  to  substantially  lessen  competition  between  such  corporations,  or 
any  of  them,  whose  stock  or  other  share  capital  is  so  acquired,  or  to 
restrain  such  commerce  in  any  section  or  community,  or  tend  to  create 
a  monopoly  of  any  line  of  commerce. 

This  section  shall  not  apply  to  corporations  purchasing  such  stock 
solely  for  in\'estment  and  not  using  the  same  by  voting  or  otherwise 
to  bring  about,  or  in  attempting  to  bring  about,  the  substantial  lessen- 
ing of  competition.  Nor  shall  anything  contained  in  this  section 
prevent  a  corporation  engaged  in  commerce  from  causing  the  form.ation 
of  subsidiary  corporations  for  the  actual  carrying  on  of  their  immediate 
lawful  business,  or  the  natural  and  legitimate  branches  or  extensions 
thereof,  or  from  owning  and  holding  all  or  a  part  of  the  stock  of  such 
subsidiary  corporations,  when  the  effect  of  such  formation  is  not  to 
substantially  lessen  competition. 

Nor  shall  anything  herein  contained  be  construed  to  prohibit  any 
common  carrier  subject  to  the  laws  to  regulate  commerce  from  aiding 
in  the  construction  of  branches  or  short  lines  so  located  as  to  become 
feeders  to  the  main  line  of  the  company  so  aiding  in  such  construction 


TO  FEDERAL  CONTROL  OF  INDUSTRY  647 

or  from  acquiring  or  owning  all  or  any  part  of  the  stock  of  such  branch 
lines,  nor  to  prevent  any  such  common  carrier  from  acquiring  and 
owning  all  or  any  part  of  the  stock  of  a  branch  or  short  line  constructed 
by  an  independent  company  where  there  is  no  substantial  competition 
between  the  company  owning  the  branch  line  so  constructed  and  the 
company  owning  the  main  line  acquiring  the  property  or  an  interest 
therein,  nor  to  prevent  such  common  carrier  from  extending  any  of  its 
lines  through  the  medium  of  the  acquisition  of  stock  or  otherwise  of 
any  other  such  common  carrier  where  there  is  no  substantial  competi- 
tion between  the  company  extending  its  lines  and  the  company  whose 
stock,  property,  or  an  interest  therein  is  so  acquired. 

Nothing  contained  in  this  section  shall  be  held  to  affect  or  impair 
any  right  heretofore  legally  acquired :  Provided,  That  nothing  in  this 
section  shall  be  held  or  construed  to  authorize  or  make  lawful  anything 
heretofore  prohibited  or  made  illegal  by  the  antitrust  laws,  nor  to 
exempt  any  person  from  the  penal  provisions  thereof  or  the  ci\'il 
remedies  therein  provided. 

Section  8.  That  from  and  after  two  years  from  the  date  of  the 
approval  of  this  Act  no  person  shall  at  the  same  time  be  a  director  or 
other  officer  or  employee  of  more  than  one  bank,  banking  association 
or  trust  company,  organized  or  operating  under  the  laws  of  the  United 
States,  either  of  which  has  deposits,  capital,  surplus,  and  undivided 
profits  aggregating  more  than  $5,000,000;  and  no  private  banker,  or 
person  who  is  a  director  in  any  bank  or  trust  company,  organized  and 
operating  under  the  laws  of  a  State,  having  deposits,  capital,  surplus, 
and  undivided  profits  aggregating  more  than  $5,000,000,  shall  be 
eligible  to  be  a  director  in  any  bank  or  banking  association  organized  or 
operating  under  the  laws  of  the  United  States.  The  eligibiUty  of  a 
director,  officer,  or  employee  under  the  foregoing  provisions  shall  be 
determined  by  the  average  amount  of  deposits,  capital,  surplus,  and 
undivided  profits  as  shown  in  the  official  statements  of  such  bank, 
banking  association,  or  trust  company  filed  as  provided  by  law  during 
the  fiscal  year  next  preceding  the  date  set  for  the  annual  election  of 
directors,  and  when  a  director,  officer,  or  employee  has  been  elected 
or  selected  in  accordance  with  the  provisions  of  this  Act  it  shall  be 
lawful  for  him  to  continue  as  such  for  one  year  thereafter  under  said 
election  or  employment. 

No  bank,  banking  association  or  trust  company,  organized  or  oper- 
ating under  the  laws  of  the  United  States,  in  any  city  or  incorporated 
town  or  village  of  more  than  two  hundred  thousand  inhabitants,  as 
shown  by  the  last  prececHng  decennial  census  of  the  United  States, 
shall  have  as  a  director  or  other  ofiicer  or  employee  any  private  banker 
or  any  director  or  other  officer  or  employee  of  any  other  bank,  banking 
association  or  trust  company  located  in  the  same  place :  Provided, 
That  nothing  in  this  section  shall  apply  to  mutual  savings  banks  not 


648     RECENT  FEDERAL  LEGISLATION  PERTAINING 

having  a  capital  stock  represented  by  shares  :  Provided  further,  That 
a  director  or  other  officer  or  employee  of  such  bank,  banking  associa- 
tion, or  trust  company  may  be  a  director  or  other  officer  or  em[)loyee 
of  not  more  than  one  other  bank  or  trust  company  organized  under 
the  laws  of  the  United  States  or  any  State  where  the  entire  capital 
stock  of  one  is  owned  by  stockholders  in  the  other:  And  provided 
further,  That  nothing  contained  in  this  section  shall  forbid  a  director 
of  class  A  of  a  Federal  reserve  bank,  as  defined  in  the  Federal  Reserve 
Act  from  being  an  officer  or  director  or  both  an  officer  and  director  in 
one  member  bank. 

That  from  and  after  two  years  from  the  date  of  the  approval  of 
this  Act  no  person  at  the  same  time  shall  be  a  director  in  any  two  or 
more  corporations,  any  one  of  which  has  capital,  surplus,  and  undivided 
profits  aggregating  more  than  $1,000,000,  engaged  in  whole  or  in  part 
in  commerce,  other  than  banks,  banking  associations,  trust  companies 
and  common  carriers  subject  to  the  Act  to  regulate  commerce,  ap- 
proved February  fourth,  eighteen  hundred  and  eighty-seven,  if  such 
corporations  are  or  shall  have  been  theretofore,  by  virtue  of  their 
business  and  location  of  operation,  competitors,  so  that  the  elimina- 
tion of  competition  by  agreement  between  them  would  constitute  a 
violation  of  any  of  the  provisions  of  any  of  the  antitrust  laws.  The 
eligibility  of  a  director  under  the  foregoing  provisions  shall  be  deter- 
mined by  the  aggregate  amount  of  the  capital,  surplus,  and  undivided 
profits,  exclusive  of  dividends  declared  but  not  paid  to  stockholders, 
at  the  end  of  the  fiscal  year  of  said  corporation  next  preceding  the  elec- 
tion of  directors,  and  when  a  director  has  been  elected  in  accordance 
with  the  provisions  of  this  Act  it  shall  be  lawful  for  him  to  continue 
as  such  for  one  year  thereafter. 

When  any  person  elected  or  chosen  as  a  director  or  officer  or 
selected  as  an  employee  of  any  bank  or  other  corporation  subject  to 
the  pro\isions  of  this  Act  is  eligible  at  the  time  of  his  election  or 
selection  to  act  for  such  bank  or  other  corporation  in  such  capacity 
his  eligibility  to  act  in  such  capacity  shall  not  be  affected  and  he  shall 
not  become  or  be  deemed  amenable  to  any  of  the  provisions  hereof 
by  reason  of  any  change  in  the  affairs  of  such  bank  or  other  corpora- 
tion from  whatsoever  cause,  whether  specifically  excepted  by  any  of  the 
provisions  hereof  or  not,  until  the  expiration  of  one  year  from  the  date 
of  his  election  or  employment. 

Section  9.  Every  president,  director,  officer  or  manager  of  any 
firm,  association  or  corporation  engaged  in  commerce  as  a  common 
carrier,  who  embezzles,  steals,  abstracts  or  willfully  misapplies,  or 
willfully  permits  to  be  misapplied,  any  of  the  moneys,  funds,  credits, 
securities,  property  or  assets  of  such  firm,  association  or  coryoration, 
arising  or  accruing  from,  or  used  in,  such  commerce,  in  whole  or  in 
part,  or  willfully  or  knowingly  converts  the  same  to  his  own  use  or 


TO  FEDERAL   CONTROL  OF  INDUSTRY  649 

to  the  use  of  another,  shall  be  deemed  guilty  of  a  felony  and  upon 
conviction  shall  be  lined  not  less  than  S500  or  confined  in  the  peniten- 
tiary not  less  than  one  year  nor  more  than  ten  years,  or  both,  in  the 
discretion  of  the  court. 

Prosecutions  hereunder  may  be  in  the  district  court  of  the  United 
States  for  the  district  wherein  the  offense  may  have  been  committed. 

That  nothing  in  this  section  shall  be  held  to  take  away  or  impair  the 
jurisdiction  of  the  courts  of  the  several  States  under  the  laws  thereof ; 
and  a  judgment  of  conviction  or  acquittal  on  the  merits  under  the 
laws  of  any  States  shall  be  a  bar  to  any  prosecution  hereunder  for  the 
same  act  or  acts. 

Section  10.  That  after  two  years  from  the  approval  of  this  Act  no 
common  carrier  engaged  in  commerce  shall  have  any  dealings  in 
securities,  supplies  or  other  articles  of  commerce,  or  shall  make  or  have 
any  contracts  for  construction  or  maintenance  of  any  kind,  to  the 
amount  of  more  than  $50,000,  in  the  aggregate,  in  any  one  year, 
with  another  corporation,  firm,  partnership  or  association  when  the 
said  common  carrier  shall  have  upon  its  board  of  directors  or  as  its 
president,  manager  or  as  its  purchasing  or  selling  officer,  or  agent  in 
the  particular  transaction,  any  person  who  is  at  the  same  time  a 
director,  manager,  or  purchasing  or  seUing  officer  of,  or  who  has  any 
substantial  interest  in,  such  other  corporation,  firm,  partnership  or 
association,  unless  and  except  such  purchases  shall  be  made  from,  or 
such  dealings  shall  be  with,  the  bidder  whose  bid  is  the  most  favorable 
to  such  common  carrier,  to  be  ascertained  by  competitive  bidding 
under  regulations  to  be  prescribed  by  rule  or  otherwise  by  the  Inter- 
state Commerce  Commission.  No  bid  shall  be  received  unless  the 
name  and  address  of  the  bidder  or  the  names  and  addresses  of  the 
officers,  directors  and  general  managers  thereof,  if  the  bidder  be  a 
corporation,  or  of  the  members,  if  it  be  a  partnership  or  firm,  be  given 
with  the  bid. 

Any  person  who  shalL  directly  or  indirectly,  do  or  attempt  to  do 
anything  to  prevent  anyone  from  bidding  or  shall  do  any  act  to  prevent 
free  and  fair  competition  among  the  bidders  or  those  desiring  to  bid 
shall  be  punished  as  prescribed  in  this  section  in  the  case  of  an  officer 
or  director. 

Every  such  common  carrier  having  any  such  transactions  or  making 
any  such  purchases  shall  within  thirty  days  after  making  the  same 
file  with  the  Interstate  Commerce  Commission  a  full  and  detailed 
statement  of  the  transaction  showing  the  manner  of  the  competitive 
bidding,  who  were  the  bidders,  and  the  names  and  addresses  of  the 
directors  and  officers  of  the  corporations  and  the  members  of  the  firm 
or  partnership  bidding ;  and  whenever  the  said  commission  shall, 
after  investigation  or  hearing,  have  reason  to  believe  that  the  law  has 
been  violated  in  and  about  the  said  purchases  or  transactions  it  shall 


650     RECENT  FEDERAL  LEGISLATION  PERTAINING 

transmit  all  papers  and  documents  and  its  own  views  or  findings  re- 
garding the  transaction  to  the  Attorney  General. 

If  any  common  carrier  shall  violate  this  section  it  shall  be  fined  not 
exceeding  $25,000 ;  and  every  such  director,  agent,  manager  or  officer 
thereof  who  shall  have  knowingly  voted  for  or  directed  the  act  con- 
stituting such  violation  or  who  shall  have  aided  or  abetted  in  such 
violation  shall  be  deemed  guilty  of  a  misdemeanor  and  shall  be  fined 
not  exceeding  $5000,  or  confined  in  jail  not  exceeding  one  year,  or 
both,  in  the  discretion  of  the  court. 

Section  ii.  That  authority  to  enforce  compliance  with  sections 
two,  three,  seven  and  eight  of  this  Act  by  the  persons  respectively 
subject  thereto  is  hereby  vested :  in  the  Interstate  Commerce  Com- 
mission where  applicable  to  common  carriers,  in  the  Federal  Reserve 
Board  where  applicable  to  banks,  banking  associations  and  trust 
companies,  and  in  the  Federal  Trade  Commission  where  applicable 
to  all  other  character  of  commerce,  to  be  exercised  as  follows  : 

Whenever  the  commission  or  board  vested  with  jurisdiction  thereof 
shall  have  reason  to  believe  that  any  person  is  violating  or  has  violated 
any  of  the  provisions  of  sections  two,  three,  seven  and  eight  of  this 
Act,  it  shall  issue  and  serve  upon  such  person  a  complaint  stating  its 
charges  in  that  respect,  and  containing  a  notice  of  a  hearing  upon 
a  day  and  at  a  place  therein  fixed  at  least  thirty  days  after  the  service 
of  said  complaint.  The  person  so  complained  of  shall  have  the  right 
to  appear  at  the  place  and  time  so  fixed  and  show  cause  why  an  order 
should  not  be  entered  by  the  commission  or  board  requiring  such 
person  to  cease  and  desist  from  the  violation  of  the  law  so  charged  in 
said  complaint.  Any  person  may  make  application,  and  upon  good 
cause  shown  may  be  allowed  by  the  commission  or  board,  to  intervene 
and  appear  in  said  proceeding  by  counsel  or  in  person.  The  testi- 
mony in  any  such  proceeding  shall  be  reduced  to  writing  and  filed  in 
the  office  of  the  commission  or  board.  If  upon  such  hearing  the  com- 
mission or  board,  as  the  case  may  be,  shall  be  of  the  opinion  that  any 
of  the  provisions  of  said  sections  have  been  or  are  being  violated,  it 
shall  make  a  report  in  writing  in  which  it  shall  state  its  findings  as  to 
the  facts,  and  shall  issue  and  cause  to  be  served  on  such  person  an 
order  requiring  such  person  to  cease  and  desist  from  such  violations, 
and  divest  itself  of  the  stock  held  or  rid  itself  of  the  directors  chosen 
contrary  to  the  provisions  of  sections  seven  and  eight  of  this  Act,  if 
any  there  be,  in  the  manner  and  within  the  time  fixed  by  said  order. 
Until  a  transcript  of  the  record  in  such  hearing  shall  have  been  filed 
in  a  circuit  court  of  appeals  of  the  United  States,  as  hereinafter  pro- 
vided, the  commission  or  board  may  at  any  time,  upon  such  notice 
and  in  such  manner  as  it  shall  deem  proper,  modify  or  set  aside,  in 
whole  or  in  part,  any  report  or  any  order  made  or  issued  by  it  under 
this  section. 


TO   FEDERAL   CONTROL  OF  INDUSTRY  651 

If  such  person  fails  or  neglects  to  obey  such  order  of  the  commission 
or  board  while  the  same  is  in  effect,  the  commission  or  board  may 
apply  to  the  circuit  court  of  appeals  of  the  United  States,  within  any 
circuit  where  the  violation  complained  of  was  or  is  being  committed 
or  where  such  person  resides  or  carries  on  business,  for  the  enforcement 
of  its  order,  and  shall  certify  and  file  with  its  application  a  transcript 
of  the  entire  record  in  the  proceeding,  including  all  the  testimony 
taken  and  the  report  and  order  of  the  commission  or  board.  Upon 
such  filing  of  the  application  and  transcript  the  court  shall  cause  notice 
thereof  to  be  served  upon  such  person  and  thereupon  shall  have  juris- 
diction of  the  proceeding  and  of  the  question  determined  therein,  and 
shall  have  power  to  make  and  enter  upon  the  pleadings,  testimony, 
and  proceedings  set  forth  in  such  transcript  a  decree  affirming,  modify- 
ing, or  setting  aside  the  order  of  the  commission  or  board.  The  find- 
ings of  the  commission  or  board  as  to  the  facts,  if  supported  by  testi- 
mony, shall  be  conclusive.  If  either  party  shall  apply  to  the  court 
for  leave  to  adduce  additional  evidence,  and  shall  show  to  the  satis- 
faction of  the  court  that  such  additional  evidence  is  material  and  that 
there  were  reasonable  grounds  for  the  failure  to  adduce  such  evidence 
in  the  proceeding  before  the  commission  or  board,  the  court  may  order 
such  additional  evidence  to  be  taken  before  the  commission  or  board  and 
to  be  adduced  upon  the  hearing  in  such  manner  and  upon  such  terms 
and  conditions  as  to  the  court  may  seem  proper.  The  commission  or 
board  may  modify  its  findings  as  to  the  facts,  or  make  new  findings, 
by  reason  of  the  additional  evidence  so  taken,  and  it  shall  file  such 
modified  or  new  findings,  which,  if  supported  by  testimony,  shall  be 
conclusive,  and  its  recommendation,  if  any,  for  the  modification  or 
setting  aside  of  its  original  order,  with  the  return  of  such  additional 
evidence.  The  judgment  and  decree  of  the  court  shall  be  final, 
except  that  the  same  shall  be  subject  to  review  by  the  Supreme  Court 
upon  certiorari  as  provided  in  section  two  hundred  and  forty  of  the 
Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  or  board  to 
cease  and  desist  from  a  violation  charged  may  obtain  a  review  of  such 
order  in  said  circuit  court  of  appeals  by  filing  in  the  court  a  written 
petition  praying  that  the  order  of  the  commission  or  board  be  set 
aside.  A  copy  of  such  petition  shall  be  forthwith  served  upon  the 
commission  or  board,  and  thereupon  the  commission  or  board  forth- 
with shall  certify  and  file  in  the  court  a  transcript  of  the  record  as 
hereinbefore  provided.  Upon  the  filing  of  the  transcript  the  court 
shall  have  the  same  jurisdiction  to  affirm,  set  aside,  or  modify  the 
order  of  the  commission  or  board  as  in  the  case  of  an  application  by 
the  commission  or  board  for  the  enforcement  of  its  order,  and  the 
findings  of  the  commission  or  board  as  to  the  facts,  if  supported  by 
testimony,  shall  in  like  manner  be  conclusive. 


652     RECENT  FEDER.\L  LEGISLATIOX  PERTAINING 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the  United  States 
to  enforce,  set  aside,  or  modify  orders  of  the  commission  or  board  shall 
be  exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be  given  pre- 
cedence over  other  cases  pending  therein,  and  shall  be  in  every  way 
expedited.  No  order  of  the  commission  or  board  or  the  judgment  of 
the  court  to  enforce  the  same  shall  in  any  wise  relieve  or  absolve  any 
person  from  any  liability  under  the  antitrust  Acts. 

Complaints,  orders,  and  other  processes  of  the  commission  or  board 
under*  this  section  may  be  served  by  anyone  duly  authorized  by  the 
commission  or  board,  either  (a)  by  delivering  a  copy  thereof  to  the 
person  to  be  served,  or  to  a  member  of  the  partnership  to  be  served, 
or  to  the  president,  secretary,  or  other  executive  officer  or  a  director 
of  the  corporation  to  be  served ;  or  {b)  by  leaving  a  copy  thereof  at 
the  principal  ofhce  or  place  of  business  of  such  person ;  or  (c)  by  reg- 
istering and  mailing  a  copy  thereof  addressed  to  such  person  at  his 
principal  office  or  place  of  business.  The  verified  return  by  the  per- 
son so  serving  said  complaint,  order,  or  other  process  setting  forth 
the  manner  of  said  serWce  shall  be  proof  of  the  same,  and  the  return 
post-office  receipt  for  said  complaint,  order,  or  other  process  regis- 
tered and  mailed  as  aforesaid  shall  be  proof  of  the  ser\ice  of  the  same. 

Section  12.  That  any  suit,  action,  or  proceeding  under  the  anti- 
trust laws  against  a  corporation  may  be  brought  not  only  in  the  judi- 
cial district  whereof  it  is  an  inhabitant,  but  also  in  any  district  wherein 
it  may  be  found  or  transacts  business ;  and  all  process  in  such  cases 
may  be  served  in  the  district  of  which  it  is  an  inhabitant,  or  wherever 
it  may  be  found. 

Section  13.  That  in  any  suit,  action,  or  proceeding  brought  by  or  on 
behalf  of  the  United  States  subpoenas  for  witnesses  who  are  required 
to  attend  a  court  of  the  United  States  in  any  judicial  district  in  any 
case,  ci\il  or  criminal,  arising  under  the  antitrust  laws  may  run  into  any 
other  district :  Provided,  That  in  civil  cases  no  writ  of  subpoena  shall 
issue  for  witnesses  living  out  of  the  district  in  which  the  court  is  held 
at  a  greater  distance  than  one  hundred  miles  from  the  place  of  holding 
the  same  without  the  permission  of  the  trial  court  being  first  had  upon 
proper  application  and  cause  shown. 

Section  14.  That  wherever  a  corporation  shall  \'iolate  any  of  the 
penal  pro\dsions  of  the  antitrust  laws,  such  violation  shall  be  deemed 
to  be  also  that  of  the  individual  directors,  officers,  or  agents  of  such 
corporation  who  shall  have  authorized,  ordered,  or  done  any  of  the 
acts  constituting  in  whole  or  in  part  such  violation,  and  such  violation 
shall  be  deemed  a  misdemeanor,  and  upon  conviction  therefor  of 
any  such  director,  officer,  or  agent  he  shall  be  punished  by  a  fine  of 
not  exceeding  $5000  or  by  imprisonment  for  not  exceeding  one  year, 
or  by  both,  in  the  discretion  of  the  court. 


TO  FEDERAL  CONTROL  OF  INDUSTRY  653 

Section  15.  That  the  several  district  courts  of  the  United  States  are 
hereby  invested  with  jurisdiction  to  prevent  and  restrain  \io)ations  of 
this  Act,  and  it  shall  be  the  duty  of  the  several  district  attorneys  of 
the  United  States,  in  their  respective  districts,  under  the  direction  of 
the  Attorney  General,  to  institute  proceedings  in  equity  to  prevent  and 
restrain  such  violations.  Such  proceedings  may  be  by  way  of  petition 
setting  forth  the  case  and  praying  that  such  violation  shall  be  enjoined 
or  otherwise  prohibited.  When  the  parties  complained  of  shall 
have  been  duly  notified  of  such  petition,  the  court  shall  proceed,  as 
soon  as  may  be,  to  the  hearing  and  determination  of  the  case ;  and 
pending  such  petition,  and  before  final  decree,  the  court  may  at 
any  time  make  such  temporary  restraining  order  or  prohibition  as  shall 
be  deemed  just  in  the  premises.  Whenever  it  shall  appear  to  the 
court  before  which  any  such  proceeding  may  be  pending  that  the  ends 
of  justice  require  that  other  parties  should  be  brought  before  the  court, 
the  court  may  cause  them  to  be  summoned  whether  they  reside  in  the 
district  in  which  the  court  is  held  or  not,  and  subpoenas  to  that  end 
may  be  served  in  any  district  by  the  marshal  thereof. 

Section  16.  That  any  person,  firm,  corporation,  or  association 
shall  be  entitled  to  sue  for  and  have  injunctive  relief,  in  any  court  of 
the  United  States  having  jurisdiction  over  the  parties,  against  threat- 
ened loss  or  damage  by  a  violation  of  the  antitrust  laws,  including 
sections  two,  three,  seven  and  eight  of  this  Act,  when  and  under  the 
same  conditions  and  principles  as  injunctive  relief  against  threatened 
conduct  that  will  cause  loss  or  damage  is  granted  by  courts  of  equity, 
under  the  rules  governing  such  proceedings,  and  upon  the  execution 
of  proper  bond  against  damages  for  an  injunction  improWdently 
granted  and  a  showing  that  the  danger  of  irreparable  loss  or  damage 
is  immediate,  a  preliminary  injunction  may  issue :  Provided,  That 
nothing  herein  contained  shall  be  construed  to  entitle  any  person, 
firm,  corporation,  or  association,  except  the  United  States,  to  bring 
suit  in  equity  for  injunctive  relief  against  any  common  carrier  subject 
to  the  provisions  of  the  Act  to  regulate  commerce,  approved  February 
fourth,  eighteen  hundred  and  eighty-seven,  in  respect  of  any  matter 
subject  to  the  regulation,  supervision,  or  other  jurisdiction  of  the 
Interstate  Commerce  Commission. 

Section  17.  That  no  preliminary  injunction  shall  be  issued  without 
notice  to  the  opposite  party. 

No  temporary  restraining  order  shall  be  granted  without  notice  to 
the  opposite  party  unless  it  shall  clearly  appear  from  specific  facts 
shown  by  affidavit  or  by  the  verified  bill  that  immediate  and  irrepa- 
rable injury,  loss,  or  damage  will  result  to  the  applicant  before  notice 
can  be  served  and  a  hearing  had  thereon.  Every  such  temporary 
restraining  order  shall  be  indorsed  with  the  date  and  hour  of  issuance, 
shall  be  forthwith  filed  in  the  clerk's  office  and  entered  of  record, 


654     RECENT  FEDERAL  LEGISLATION  PERTAINING 

shall  define  the  injury  and  state  why  it  is  irreparable  and  why  the  order 
was  granted  without  notice,  and  shall  by  its  terms  expire  within  such 
time  after  entry,  not  to  exceed  ten  days,  as  the  court  or  judge  may  fix, 
unless  within  the  time  so  fixed  the  order  is  extended  for  a  like  period 
for  good  cause  shown,  and  the  reasons  for  such  extension  shall  be 
entered  of  record.  In  case  a  temporary  restraining  order  shall  be 
granted  without  notice  in  the  contingency  specified,  the  matter  of 
the  issuance  of  a  preliminary  injunction  shall  be  set  down  for  a  hearing 
at  the  earliest  possible  time  and  shall  take  precedence  of  all  matters 
except  older  matters  of  the  same  character  ;  and  when  the  same  comes 
up  for  hearing  the  party  obtaining  the  temporary  restraining  order 
shall  proceed  with  the  application  for  a  preliminary  injunction,  and  if 
he  does  not  do  so  the  court  shall  dissolve  the  temporary  restraining 
order.  Upon  two  days'  notice  to  the  party  obtaining  such  temporary 
restraining  order  the  opposite  party  may  appear  and  move  the  dis- 
solution or  modification  of  the  order,  and  in  that  event  the  court  or 
judge  shall  proceed  to  hear  and  determine  the  motion  as  expeditiously 
as  the  ends  of  justice  may  require. 

Section  two  hundred  and  sixty-three  of  an  Act  entitled  "An  Act  to 
codify,  revise,  and  amend  the  laws  relating  to  the  judiciary,"  approved 
March  third,  nineteen  hundred  and  eleven,  is  hereby  repealed. 

Nothing  in  this  section  contained  shall  be  deemed  to  alter,  repeal,  or 
amend  section  two  hundred  and  sixty-six  of  an  Act  entitled  "An 
Act  to  codify,  revise,  and  amend  the  laws  relating  to  the  judiciary," 
approved  March  third,  nineteen  hundred  and  eleven. 

Section  i8.  That,  except  as  otherwise  provided  in  section  i6  of 
this  Act,  no  restraining  order  or  interlocutory  order  of  injunction  shall 
issue,  except  upon  the  giving  of  security  by  the  applicant  in  such  sum 
as  the  court  or  judge  may  deem  proper,  conditioned  upon  the  payment 
of  such  costs  and  damages  as  may  be  incurred  or  suffered  by  any 
party  who  may  be  found  to  have  been  wrongfully  enjoined  or  re- 
strained thereby. 

Section  19.  That  every  order  of  injunction  or  restraining  order 
shall  set  forth  the  reasons  for  the  issuance  of  the  same,  shall  be  specific 
in  terms,  and  shall  describe  in  reasonable  detail,  and  not  by  reference 
to  the  bill  of  complaint  or  other  document,  the  act  or  acts  sought  to 
be  restrained,  and  shall  be  binding  only  upon  the  parties  to  the  suit, 
their  officers,  agents,  servants,  employees,  and  attorneys,  or  those  in 
active  concert  or  participating  with  them,  and  who  shall,  by  personal 
service  or  otherwise,  have  received  actual  notice  of  the  same. 

Section  20.  That  no  restraining  order  or  injunction  shall  be  granted 
by  any  court  of  the  United  States,  or  a  judge  or  the  judges  thereof,  in 
any  case  between  an  employer  and  employees,  or  between  employers 
and  employees,  or  between  employees,  or  between  persons  employed 
and  persons  seeking  employment,  involving,  or  growing  out  of,  a  dis- 


TO  FEDERAL   CONTROL  OF  INDUSTRY  655 

pute  concerning  terms  or  conditions  of  employment,  unless  necessary 
to  prevent  irreparable  injury  to  property,  or  to  a  property  right,  of 
the  party  making  the  application,  for  which  injury  there  is  no  adequate 
remedy  at  law,  and  such  property  or  property  right  must  be  described 
with  particularity  in  the  application,  which  must  be  in  writing  and 
sworn  to  by  the  applicant  or  by  his  agent  or  attorney. 

And  no  such  restraining  order  or  injunction  shall  prohibit  any  per- 
son or  persons,  whether  singly  or  in  concert,  from  terminating  any 
relation  of  employment,  or  from  ceasing  to  perform  any  work  or  labor, 
or  from  recommending,  advising,  or  persuading  others  by  peaceful 
means  so  to  do ;  or  from  attending  at  any  place  where  any  such 
person  or  persons  may  lawfully  be,  for  the  purpose  of  peacfuUy  ob- 
taining or  communicating  information,  or  from  peacefully  persuading 
any  person  to  work  or  to  abstain  from  working ;  or  from  ceasing  to 
patronize  or  to  employ  ahy  party  to  such  dispute,  or  from  recommend- 
ing, advising,  or  persuading  others  by  peaceful  and  lawful  means  so 
to  do ;  or  from  paying  or  gi^dng  to,  or  withholding  from,  any  person 
engaged  in  such  dispute,  any  strike  benefits  or  other  moneys  or  things 
of  value ;  or  from  peaceably  assembling  in  a  lawful  manner,  and  for 
lawful  purposes ;  or  from  doing  any  act  or  thing  which  might  lawfully 
be  done  in  the  absence  of  such  dispute  by  any  party  thereto  ;  nor  shall 
any  of  the  acts  specified  in  this  paragraph  be  considered  or  held  to  be 
violations  of  any  law  of  the  United  States. 

Section  21.  That  any  person  who  shall  willfully  disobey  any  lawful 
writ,  process,  order,  rule,  decree,  or  command  of  any  district  court  of 
the  United  States  or  any  court  of  the  District  of  Columbia  by  doing 
any  act  or  thing  therein,  or  thereby  forbidden  to  be  done  by  him,  if 
the  act  or  things  so  done  by  him  be  of  such  character  as  to  constitute 
also  a  criminal  offense  under  any  statute  of  the  United  States,  or  under 
the  laws  of  any  State  in  which  the  act  was  committed,  shall  be  pro- 
ceeded against  for  his  said  contempt  as  hereinafter  provided. 

Section  22.  That  whenever  it  shall  be  made  to  appear  to  any  dis- 
trict court  or  judge  thereof,  or  to  any  judge  therein  sitting,  by  the 
return  of  a  proper  officer  on  lawful  process,  or  upon  the  affidavit  of 
some  credible  person,  or  by  information  filed  by  any  district  attorney, 
that  there  is  reasonable  ground  to  believe  that  any  person  has  been 
guilty  of  such  contempt,  the  court  or  judge  thereof,  or  any  judge 
therein  sitting,  may  issue  a  rule  requiring  the  said  person  so  charged 
to  show  cause  upon  a  day  certain  why  he  should  not  be  punished  there- 
for, which  rule,  together  with  a  copy  of  the  affidavit  or  information, 
shall  be  served  upon  the  person  charged,  with  sufficient  promptness 
to  enable  him  to  prepare  for  and  make  return  to  the  order  at  the  time 
fixed  therein.  If  upon  or  by  such  return,  in  the  judgment  of  the 
court,  the  alleged  contempt  be  not  sufficiently  purged,  a  trial  shall 
be  directed  at  a  time  and  place  fixed  by  the  court :  Provided,  Jiowcver, 


656     RECENT  FEDERAL  LEGISLATION  PERTAINING 

That  if  the  accused,  being  a  natural  person,  fail  or  refuse  to  make 
return  to  the  rule  to  show  cause,  an  attachment  may  issue  against  his 
person  to  compel  an  answer,  and  in  case  of  his  continued  failure  or 
refusal,  or  if  for  any  reason  it  be  impracticable  to  dispose  of  the  matter 
on  the  return  day,  he  may  be  required  to  give  rea  enable  bail  for 
his  attendance  at  the  trial  and  his  submission  to  the  final  judgment  of 
the  court.  Where  the  accused  is  a  body  corporate,  an  attachment  for 
the  seciuestration  of  its  property  may  be  issued  upon  like  refusal  or 
failure  to  answer. 

In  all  cases  within  the  purview  of  this  Act  such  trial  may  be  by 
the  court,  or,  upon  demand  of  the  accused,  by  a  jury ;  in  which  latter 
event  the  court  may  impanel  a  jury  from  the  jurors  then  in  attend- 
ance, or  the  court  or  the  judge  thereof  in  chambers  may  cause  a 
sufficient  number  of  jurors  to  be  selected  and  summoned,  as  provided 
by  laW)  to  attend  at  the  time  and  place  of  trial,  at  which  time  a  jury 
shall  be  selected  and  impaneled  as  upon  a  trial  for  misdemeanor ; 
and  such  trial  shall  conform,  as  near  as  may  be,  to  the  practice  in 
criminal  cases  prosecuted  by  indictment  or  upon  information. 

If  the  accused  be  found  guilty,  judgment  shall  be  entered  accord- 
ingly, prescribing  the  punishment,  either  by  fine  or  imprisonment, 
or  both,  in  the  discretion  of  the  court.  Such  fine  shall  be  paid  to  the 
United  States  or  to  the  complainant  or  other  party  injured  by  the 
act  constituting  the  contempt,  or  may,  where  more  than  one  is  so 
damaged,  be  divided  or  apportioned  among  them  as  the  court  may 
direct,  but  in  no  case  shall  the  fine  to  be  paid  to  the  United  States 
exceed,  in  case  the  accused  is  a  natural  person,  the  sum  of  $1000, 
nor  shall  such  imprisonment  exceed  the  term  of  six  months  :  Provided, 
That  in  any  case  the  court  or  a  judge  thereof  may,  for  good  cause 
shown,  by  affidavit  or  proof  taken  in  open  court  or  before  such  judge 
and  filed  with  the  papers  in  the  case,  dispense  with  the  rule  to  show 
cause,  and  may  issue  an  attachment  for  the  arrest  of  the  person  charged 
with  contempt ;  in  which  event  such  person,  when  arrested,  shall  be 
brought  before  such  court  or  a  judge  thereof  without  unnecessary 
delay  and  shall  be  admitted  to  bail  in  a  reasonable  penalty  for  his 
appearance  to  answer  to  the  charge  or  for  the  contempt ;  and  there- 
after the  proceedings  shall  be  the  same  as  provided  herein  in  case  the 
rule  had  issued  in  the  first  instance. 

Section  23.  That  the  evidence  taken  upon  the  trial  of  any  persons 
so  accused  may  be  preserved  by  bill  of  exceptions,  and  any  judgment 
of  conviction  may  be  reviewed  upon  writ  of  error  in  all  respects  as 
now  provided  by  law  in  criminal  cases,  and  may  be  affirmed,  reversed, 
or  modified  as  justice  may  require.  Upon  the  granting  of  such  writ  of 
error,  execution  of  judgment  shall  be  stayed,  and  the  accused,  if 
thereby  sentenced  to  imprisonment,  shall  be  admitted  to  bail  in  such 
reasonable  sum  as  may  be  required  by  the  court,  or  by  any  justice,  or 


TO   FEDERAL   CONTROL  OF  INDUSTRY  657 

any  judge  of  any  district  court  of  the  United  States  or  any  court  of 
the  District  of  Columbia. 

Section  24.  That  nothing  herein  contained  shall  be  construed  to 
relate  to  contempts  committed  in  the  presence  of  the  court,  or  so  near 
thereto  as  to  obstruct  the  administration  of  justice,  nor  to  contempts 
committed  in  disobedience  of  any  lawful  writ,  process,  order,  rule,  de- 
cree, or  command  entered  in  any  suit  or  action  brought  or  prosecuted 
in  the  name  of,  or  on  behalf  of,  the  United  States,  but  the  same,  and 
all  other  cases  of  contempt  not  specifically  embraced  within  section 
twenty-one  of  this  Act,  may  be  punished  in  conformity  to  the  usages 
at  law  and  in  equity  now  prevailing. 

Section  25.  That  no  proceeding  for  contempt  shall  be  instituted 
against  any  person  unless  begun  within  one  year  from  the  date  of  the 
act  complained  of ;  nor  shall  any  such  proceeding  be  a  bar  to  any 
criminal  prosecution  for  the  same  act  or  acts ;  but  nothing  herein 
contained  shall  affect  any  proceedings  in  contempt  pending  at  the  time 
of  the  passage  of  this  Act. 

Section  26.  If  any  clause,  sentence,  paragraph,  or  part  of  this 
Act  shall,  for  any  reason,  be  adjudged  by  any  court  of  competent  juris- 
diction to  be  invalid,  such  judgment  shall  not  affect,  impair,  or  invali- 
date the  remainder  thereof,  but  shall  be  confined  in  its  operation  to 
the  clause,  sentence,  paragraph,  or  part  thereof  directly  involved  in 
the  controversy  in  which  such  judgment  shall  have  been  rendered. 

Approved,  October  15,  19 14. 


INDEX 


Accounts  and  reports  of  public  service       Burgess,  J.  W.,  on  police  power,   103, 

corporations,  323 
Addyston  Pipe  case,  261,  264,  548,  550 
Administration    and    the    Courts,    see 

Judicial      Review,      Justice      Field, 

Justice  Marshall 
Administration   of    justice,   defects  in, 

94,  loi 

Administrative  and  legislative  power 
compared,  378  S.,  438 

Administrative  determination  of  Fed- 
eral Government,  387  ff. 

Administrative  functions  and  labor 
laws,  414,  415,  479,  480 

Administrative  law,  325  tl. ;    usurpation 

in,  SSI 
Agreements  to  fix  price,  37 
Andrews,  J.  B.,  413 
Anti-trust  law.  Federal,  38,  46-47,  140, 

243,  267,   280  ff.     See  also  Sherman 

Law.     State  anti-trust  laws,  40,  41, 

140,  187,  23s  ff. ;   operation  of,  44  ff. 

British  anti-trust  law,  267,  268,  270  ff. 
Assumption  of  risks,  466 
Australia,    Constitution    of,    125,    126; 

minimum  wage  law  of,  431 
Ayres,  A.  U.,  191 


Banks,  regulation  of,  145 ;  charters  of, 
209.     See  also  Alexander  Hamilton 

Barbour,  justice,  on  police  power  of 
states,  119 

"Blue  Sky"  laws,  191  ff. 

Bounties,  57,  516 

Bowman,  H.  M.,  197 

Boycott,  265,  266,  48s,  491  ff.,  494,  617. 
See  also  Carpenter,  Justice  Harlan, 
Judge  Taft,  Law  of,  485  ff. 

Bradley,  Justice,  on  congressional  power 
over  corporations,  210 

Brandcis,  L.  D.,  on  trust  regulation,  602 

British  minimum  wage  legislation,  433 

Brooks,  T.  J.,  623 

Brown,  Justice,  on  police  power,  113 

Bruce,  A.  A.,  293 

Buck  Stove  case,  283,  487-490 

Bureaucratic  control,  35.  See  Cen- 
tralization 


104 
Business,  affected  with  a  public  inter- 
est, 285  ff.,  293  ff.,  344  ff. ;  difference 
between  public  and  private,  284; 
and  government,  33,  35,  69;  enter- 
prise and  the  law,  38;  regulation  of, 
24,  26,  28  ff.,  69,  140,  157  ff.,  498  ff. ; 
size  of  business  unit,  3S-  Sec  also  .Anti- 
trust legislation.  Congress,  laissez- 
faire,  Sherman  law,  Inspection  laws 

Calvert,  T.  H.,  547 
Carpenter,  Judge,  on  boycotts,  486 
Cattle  legislation,  142,  168 
Centralization,  26 ;    Federal  centraliza- 
tion, 26,  42,  209  ff.,  498,  547  ff.,  SSI  ff. 
Charles  River  Bridge  case,  21,  24 
Charter  of  public  service  corporations, 

317,  359 

Charters  of  corporations,  7,  16  ff.,  179 
ff.,  212,  213,  173 

Class  legislation,  302 

Clifford,  Justice,  on  power  of  courts 
over  State  legislation,  505 

Combinations,  197  ff.,  267  ff.,  576  ff., 
580,  s88.  See  Anti-trust  law,  Trusts, 
Monopoly,  Competition.  Methods  of, 
261  ff.  See  also  Judge  Cooley,  Dicey, 
Justice  Hughes 

Commission,  authority  of,  315  ff. ; 
power  of,  317  ff.,  343,  378  ff. ;  organ- 
ization of,  311  ff. ;  operation  of, 
346  ff. ;  industrial,  415,  467  ff. ;  tax, 
60;  pubhc  utilities,  308  ff. ;  Railroad, 
41,  336 ;  government  by,  61,  552,  332  ; 
nature  of  commissions'  power,  378  ft". ; 
criticism  of,  47,  48,  324  ff.,  332  ff. ; 
and  judicial  functions,  328  ff.,  379  ff., 
394  IT.,  403  ff. ;  and  legislative  func- 
tions, 379  ff.  See  also  Fuller,  Chief 
Justice 

Commtm  law,  92,  285;  and  decent,  68; 
and  corporations,  186 ;  on  conspiracy, 
270  ff.,  278;   individualism  in,  95 

Commons,  J.  R.,  467 

Commonwealth  v.  Alger,  118 

Communism,  50 


6S9 


66o 


INDEX 


Competition,  7,  8,  46,  262-265,  578,  579, 
582.     See  also  Monopoly,  Trust 

Congress,  power  to  pass  national  in- 
corporation law,  213  ff. ;  power  to 
regulate  state  corporations,  218,  501 ; 
power  over  corporations,  208  ff. ; 
power  over  manufactures,  547 

Conspiracy,  270  ff. 

Constitution,  82,  83 ;  and  property,  i,  4, 
5, 51, 52, 53  ff-. 73  ff-, 82, 123, 128 ff.,  293, 
452 ;  and  social  reform,  137  ff.,  418  ff., 
452  ff.,  503  ff. ;  and  democracy,  78  ff. ; 
and  labor  legislation,  418  ff.,  452 ;  and 
regulation  of  business,  498 ;  of  states, 
52,  54,  82,  83.     See  also  Police  power 

Constitutionality  of  housing  schemes, 
519  ff. ;  of  compulsory  compensation 
acts,  452  ff.     See  also  Police  power 

Constitutional  limitations  on  labor  legis- 
lation, 418  ff. ;  on  federal  regulation, 
498  ff.     See  also  Police  power 

Constitutional  rights,  51  ff.  See  also 
Property,  Fourteenth  Amendment 

Contract,  freedom  of,  142,  143,  157  ff., 
434,  435 ;  impairing  obligation  of, 
16  ff.,  157  ff.  See  also  Dartmouth 
College  case ;  Justice  Field 

Contract  labor,  418  ff.  See  Police 
power,  430  ff. 

Cook,  W.  W.,  103 

Cooley,  Judge,  on  combinations,  272 

Cooley,  M.  E.,  362 

Corporations,  5,  7,  25,  33,  42,  183, 
186  ff.,  502  ;  abuse  of  charter,  179  ff. ; 
interlocking,  197  ff. ;  directorates, 
197  ff. ;  contracts  of,  201  ff. ;  regula- 
tion of,  by  Congress,  208  ff.,  213,  218, 
501 ;  regulating  securities  of,  191  ff. ; 
foreign,  175,  189,  190;  tax  on,  164, 
165;  laws  of  N.  J.,  185;  Del.,  180; 
W.  Va.,  182  ;  Nevada,  180 ;  laws,  uni- 
form, 184  ff.,  191 ;  charter  a  contract, 
7  ff.,  16  ff. ;  national  control  of, 
208  ff.,  218.  See  also  Dartmouth 
College  case;  Contract;  Hamilton 
Cotton  Compress  case,  262 

Courts,  and  interpretation  of  law,  87  ff. ; 
and  property,  73  ff.,  128  ff.,  137  ff. ; 
and  pensions,  511  ff. ;  and  executive 
power,  115  ff. ;  and  interjj relation  of 
Constitution,  115  ff . ;  and  labor  legis- 
lation, 302  ff.,  403  ff. ;  and  commis- 
sions, see  Judicial  Review 

Dartmouth  College  case,  5,  7  ff.,  74 
Day,  Justice,  on  poHce  power,  152 


Delaware  Corporation  laws,  180  ff. 
Dicey,  Prof.,  on  combinations,  269 
Due  process  of  law,  124,  155,  238,  2392., 

428,  437 
Dunn,  S.  O.,  332 

Economic  legislation,  168 

Emerick,  C.  F.,  73 

Emery,  J.  A.,  on  employers'  combina- 
tions, 614  ff. 

Eminent  domain,  53  ff. 

Employees,  injuries  to,  139 

Employer's  liability  and  workman's 
compensation  laws,  88,  445  ff.,  452, 
462,  467 

Employers'  associations,  614  ff. 

Examination  for  trades  and  callings,  by 
government,  65 

Executive  power  and  courts,  115 

Farmers  and  Merchants  National  Bank 

vs.  Dearing,  209 
Farmers,  combinations  of,  623  ff. 
Federal   power   to   regulate  commerce, 

570 
Federal  Trade  Commission,  568  ff.,  584; 

act,  635.     See  also  Law,  H.  K.  Smith, 

Stetson,  Towne,  Vinson 
Fellow  Servant  Rule,  466 
Field,  Justice,  on  impairing  obligation 

of  contract,  23 ;  on  police  power,  129 ; 

in  Munn  11.  Illinois,  296  ff. ;    an  ad- 
ministrative determination,  389 
Fletcher  v.  Peck,  20 
Fourteenth  Amendment,  5,  6,  54,  120, 

122,  125,  504,  522,  525  ff. 
Franchise,   pubhc   service    corporation, 

317  ff. 
Freedom  of  speech  and  press,  496 
Freund,  E.,  418;   on  police  power,  104, 

122 
Friedman,  H.  J.,  378 
Fuller,  Chief  Justice,  on  nature  of  the 

power  of  commissions,  379 

Gambling  contracts,  70  ff . ;  legislation, 
141 

Game  laws,  168 

Gary,  E.  H.,  on  Sherman  law,  580 

Gas  Company  cases,  526 

Gompers,  S.,  on  labor  combinations, 
609 

Goodnow,  F.  J.,  503 

Government  control,  25 ;    and  centrali- 
zation, 26  ff . ;  regulation  of  prices,  32 ;  ' 
regulation  of  size  of  business  unit,  33 ; 


INDEX 


66i 


regulation,  34,  37,  42,  43,  53  fT.  See 
Commissions,  Police  power,  Regu- 
lation 

Grain  rate  law,  171 

Granger  cases,  22,  425,  526 

Hadley,  A.  T.,  i ;  on  railroads,  336 

HaU,  J.  P.,  498 

Ha'milton,  Alexander,  on  trading  corpo- 
rations, 212  ;  on  the  banlc  charter,  212 

Harlan,  Justice,  on  police  power,  124, 
150,  151,  152;  in  Standard  Oil  case, 
253  S. ;   on  boycott,  486 

Hastings,  W.  G.,  on  police  power,  105 

Health  legislation,  62-64 

Hepburn  Act,  42,  43  fT. 

Hoar,  Senator,  on  Sherman  law,  256 

Holcombe,  A.  N.,  430 

Holden  v.  Hardy,  113,  123,  124 

Holding  companies,  241  ff.,  262 

Holmes,  Justice,  on  Northern  Securities 
case,  46 ;  on  legislative  power,  117; 
on  constitutionality  of  statutes,  123; 
on  police  power,  152;  on  distinction 
between  legislative  and  judicial  func- 
tions, 379 

Housing  of  working  classes,  518  ff. 

Hughes,  Justice,  on  police  power,  151; 
on  combinations,  261 

Immigration  Commission,  553 

Individualism,  50,  51,  94,  153,  154;  of 
common  law,  95.     Sec  Laissez  faire 

Industrial  Commission,  415,  467  ff. 

Inspection  laws,  167 

Inspection  of  public  service  corpora- 
tions, 356 

Insurance  Companies,  regulation  of,  145 

Interloclcing  corporations,  197  iT. 

International  Harvester  Corporation, 
144,  203 

Interstate  Commerce  Commission,  39, 
1675.;  corporations  engaged  in,  219; 
power  to  regulate,  211,  215,  220,  500; 
law,  25,  38,  39;  cases,  167 

Judicial  control  of  commissions,  409 
Judicial  functions,  378,    394.     See  also 

Justice  Holmes,  Justice  Miller 
Judicial  Review,  394  ff.,  403  ff.,  434 

Kansas  "blue  sky  "  law,  191 

Kent,   Justice,   in   Dartmouth   College 

case,  14 
Kinley,  D.,  25 
Kno.xville  Water  Co.  Case,  541 


Labor,  combinations  of,  485,  608  ff., 
618-619.  ■^'^^  (^^^0  Gompers;  legis- 
lation, 139  ff.,  302,  413  ff. ;  constitu- 
tional hmitations  on,  418  ff. 

Lacombe,  Judge,  opinion  in  Tobacco 
case,  45 

Laidler,  H.  W.,  485 

Laissez  faire,  25,  285,  291 ;  as  a  rule  of 
action,  325  ff.,  344 

Land-tenure,  2  ;   for  public  purposes,  55 

Law,  flexibihty  of,  92  ff.,  100;  in  books 
and  law  in  action,  84  ff. ;  unconstitu- 
tional, 87,  88;  uncertainty  of,  574;. 
diversity  of,  in  the  states,  49,  63,  64; 
defects  in  administration  of,  94 

Legislation,  49  ff. ;  affecting  private 
property,  53,  61,  157  ff. ;  modern  eco- 
nomic, 16S;  uniformity  in  states,  66, 
72;  in  interest  of  debtor  class,  69; 
rigidity  in,  100;  not  reviewable, 
408;  on  corporations,  179  ff.,  184  ff. ; 
on  public  utilities,  308  ;  power  of,  438 

Licensing  trades,  71.  See  also  Police 
power 

Liquor  and  cigarette  legislation,  141,  168 

Lodge,  H.  C,  on  Dartmouth  College 
case,  10-14 

Lord,  J.  W.,  445 

Low,  Seth,  testimony  before  Senate 
Committee  on  Interstate  Commerce, 
576 

Magna  Charta,  298,  328  ff. 

Mails,  use  of,  for  control  of  corporations, 

503;  fraud  order,  557  ff. 
Maltbie,  M.  R.,  403 
Manufacture,  control  of,  by  Congress, 

547 
Manufacturers'  Association,  614 
Marbury  II.  Madison,  115 
Marine  regulations,  172 
Marshall,  Chief  Justice,  on  police  power, 

115  ;  on  administrative  functions,  390. 

See  Dartmouth  College  case 
McKenna,  Justice  on  police  power,  151 
Mechanics'  lien,  70 
Miller,  S.  T.,  221 
Miller,   Justice,   on   judicial   functions, 

331;    on  purposes  of  taxation,  504, 

513 
Mines,  control  of,  by  State,  293  ff. 
Minimum  wage,  30  ff.,  430  ff.,  440-444 
Minnesota  rate  cases,  528 
Mogul  Steamship  Company  case,  233 
Mono]iolics,  ^J„  34,  36,  273  ;  case  of  the, 

221   IT.,  273  IT.;    early  English,  222, 


662 


INDEX 


223;  development  of  English  deci- 
sions on,  224  ff. ;  development  of 
U.  S.  decisions  on,  234  ff. ;  state  deci- 
sions on,  235  ff. ;  holding  companies 
and,  241;  present  problem  of,  277; 
modern  law  of,  275  ;  common  law  of, 
270-278;  defined,  251,  257.  See  also 
Trusts,  Anti-trust  laws,  Sherman  law 

Montague,  G.  H.,  38 

Moorehead,  J.  R.,  588 

Morawetz,  V.,  208 

Mortgager,  legislation  on,  69 

Mowry,  D.  E.,  179 

Munn  V.  Illinois,  130,  296,  423,  547 

National  incorporation  of  trading  com- 
panies, 211  ff. 

Navigation  law,  169 

Nebraska  rate  cases,  533 

Negligence,  law  of,  445,  453;  contribu- 
tory, 465 

Negotiable  instruments  act,  68,  69 

Negro  segregatioa.law,  169 

Nevada  corporation  laws,  180  ff. 

New  Jersey  corporation  law,  179-182; 
employers'  liability  commission,  462 

New  York  laws  pertaining  to  security 
issues,  192  ff. 

New  York  vs.  Miln,  119 

New  Zealand  minimum  wage  board, 
431  £f. 

Northern  Securities  case,  46,  130,  133, 
134,  262,  549.    See  also  Justice  Holmes 

Nuisances,  70.     See  also  Police  power 

Ogden  V.  Saunders,  21 
Oleomargarine,  169 
Orton,  J.  F.,  7 

Peckham,  Justice,  on  police  power,  152 ; 
on  unreasonable  restraint,  249 

Pensions,  old  age  and  sickness,  508  ff. 

Pierce,  F.,  551 

Pilot  and  harbor  control,  172 

Police  power,  29,  61,  62,  63  ff.,  70,  103  ff., 
459;  definitions,  103-104,  113,  122; 
history  of,  103  ff. ;  nature  of,  109  ff. ; 
rule  of  reason  and,  113  ff. ;  limits  of, 
126,  153,  154;  social  reform  and, 
126  ff. ;  and  property  guarantees, 
128  ff. ;  U.  S.  Supreme  Court  and, 
137  ff. ;  U.  S.  Supreme  Court  bulwark 
of,  153  ff . ;  over  business,  288,  289, 
300,  301  ff. ;  and  compulsory  compen- 
sation, 458  ff. ;  cannot  be  bartered 
away,  22;   legislation,  157,  167.     See 


also  Justice  Barbour,  Burgess,  Justice 
Brown,  Justice  Day,  Justice  Field, 
Frcund,  Justice  Holmes,  Hastings, 
Justice  Hughes,  Justice  Marshall, 
Justice  McKenna,  Justice  Peckham, 
Justice  Shaw,  Justice  Story 

Pond,  O.  L.,  394 

Pound,  Roscoe,  84 

Powell,  T.  R.,  387 

Prigg  V.  Commonwealth,  119 

Prohibition,  64,  65 

Property,  changing  conceptions  of,  i  ff. ; 
rights,  I,  s,  6,  7,  50  ff.,  78,  79,  128,  129, 
130,  157,  293,  294;  in  colonies,  2; 
common  law  and,  55,  66;  descent  of, 
68;  legal  basis  of,  50,  51  ff. ;  legal 
power  and  remedies  as  to,  161  ff. ; 
the  courts  and,  73  ff. ;  administrative 
determination  affecting  property, 
388  ff. ;  burdened  with  public  interest, 
294,  344;  and  pubhc  opinion,  78,  81, 
82;  limitations  on,  52,  54  ff.,  61  ff., 
65  ff.,  294  ff.  See  also  Public  service, 
Corporations,  Police  power,  Shaw 

Pubhcity,  36;   in  corporate  affairs,  572, 

573  ff- 

Public  improvements,  146 

Public  purpose,  53  ff. ;  extension  of, 
523;  what  is,  505  ff.  See  Eminent 
domain 

Public  service  corporations,  47,  144, 
338  ff. ;  commissions,  308  ff.,  336  ff., 
344  ff. ;  regulating,  158,  159.  See 
also  Public  utilities,  Taney 

PubHc  utilities,  284  ff. ;  test  of  difference 
between  public  and  private  business, 
284  ff.,  294,  295,  296,  300;  regulation 
of,  308  ff.,  344  ff.,  403;  permit  for, 
359  ff. ;  reasonable  charge  for  ser\-ice, 
362  ff. ;  definition,  337.  See  also 
Public  service 

Pure  food  act,  64,  72,  140 

Railroads,  legislation  pertaining  to,  41, 
42,  143,  169  ff. ;  state  aid,  75 ;  rela- 
tion to  other  public  utilities,  339; 
rates,  143,  320,  525  ff.,  382  ;  manage- 
ment, 143,  320;  commissions,  336; 
tax,  173;  Pullman  and  refrigerator 
tax,  174;  Hepburn  act,  42,  43  ff. 
See  also  Public  serv'ice.  Public  util- 
ities, Hadley 

Regulation  of  business,  142,  143,  285  ff., 
294  ff.,  324  ff.,  332  ff. ;  of  security 
issues,  191 ;  of  pubHc  ser\'ice,  308  ff., 
320;  of  prices,  32;    of  rates,  143,  144, 


INDEX 


663 


171,  320.     Sec  Corporations,  Trusts, 

Railroads,  Laissez  faire,  Business 
Restraint   of   trade,    226.     See  Trusts, 

Anti-trust  law 
Retail  merchants,  combination  of,  588  ff. 
Roemer,  J.  H.,  344 
Roosevelt,  T.,  on  anti-trust  law,  43,  46; 

on  Judicial  functions,  116 

Safety,  public,  66 

Sales,  regulating,  140 

Sales  Act,  66,  68 

San  Diego  Water  case,  539 

Security  issues,  regulating,  191,  319,  340 

Sharfman,  I.  L.,  308 

Shaw,  Chief  Justice,  on  police  power,  62 ; 
on  obligations  of  property  owners,  118 

Sherman,  Senator,  243,  255,  258 

Sherman  Act,  243,  267,  333,  576,  594  fl., 
616  ff.  See  also  Anti-trust  act.  Gar}', 
E.  H.,  Hoar,  Peckham,  Roosevelt 

Slaughter-House  cases,  121 

Smith,  H.  K.,  on  interstate  trade  com- 
mission, 568  ff. 

Smith,  IMunroe,  on  amending  state  con- 
stitutions, 834 

SociaHsm,  29,  51,  79,  80,  292 

Social  justice  and  law,  98  ff.,  168 

Social    reform    and    the    Constitution, 

137  ff-,  503  ff- 

South  Dakota  coq:)oration  laws,  180  ff. 

Special  pri\-ilege,  i  ff.,  7  ff.,  2,  16  ff. 
See  Dartmouth  College  case.  Prop- 
erty 

Standard  oil  case,  45,  73,  113,  243  ff., 
282.     See  also  Harlow,  \\'aite 

Standard  Oil  Company,  44,  205 ;  his- 
tory of,  245  ff.     See  Trusts 

State  aid,  57 

State  control  of  public  utilities,  284  ff., 
308  ff. ;  of  labor,  426  ff. 

State  insurance,  452 

State  labor  bureau,  413  ff. 

State  laws  affecting  corporations,  216. 
See  also  Legislation 

Steam  ship  tax,  173 

Steel  corporation,  197,  203 

Stetson,  F.  L.,  on  interstate  trade  com- 
mission, 594 

Stimson,  F.  J.,  49,  267 

Stockholder's  interest,  199,  202 

Stockholders'  liabilitj'  laws,  160 

Stock  issue,  191,  319,  340 

Story,  Justice,  on  police  power,  119;  in 
Dartmouth  College  case,  14 

Strikes  and  lockouts,  339 


Sugar  trust,  203,  261 ;  case,  549,  550 
Swayze,  J.  P.,  525 

Taft,  Judge  W.  H.,  in  .\ddyston  Pipe 
case,  260 ;  on  boycott,  486 

Taney,  Chief  Justice,  on  charter  of 
public  service  corporations,  21 

Tax,  Pullman,  174;  E.xpress  Co.,  174; 
Telegraph  and  Telephone,  1 75  ;  Rail- 
road, 173;  foreign  corporations,  175; 
Salesmen,  175;  Import,  176;  on 
Vessels,  176;  Bridge,  177;  Corpora- 
tions, 164,  188,  502  ;  State  and  Munic- 
ipal, 165 

Taxation  and  public  purpose,  56  ff., 
503  ff .  See  also  Miller ;  form  of,  58, 
59,  60;  laws,  146,  163;  state  and 
municipal,  165,  166;  state  and  na- 
tional corporations,  217 

Taxing  power,  22,  173 

Taylor,  H.,  324 

Telegraph  and  Telephone  companies, 
regulations,  145,  172 

Tobacco  Trust  case,  45,  73.  See  also 
Lacombe 

Towne,  H.  R.,  on  interstate  trade  organ- 
izations, 576 

Trusts,  39,  40;  kinds  of,  260  ff . ;  to- 
bacco, 45,  73;  paper,  40;  beef,  40; 
oil,  40,  73,  245  ff- ;  harvester,  35,  203 ; 
steel,  197,  203-  sugar,  203,  261; 
pipe,  264 ;  wall  paper,  264,  265 ; 
banana,  262;  regulation,  602  S.  See 
also  Anti-trust  act,  Sherman  Act, 
Brandeis,  Taft 

Uniform  system  of  accounting  for  pub- 
he  service  boards,  351  ff. 

U.  S.  Supreme  Court  and  police  power, 
137  ff.,  153  ff. 

Valuation   of   public   securities,  347  ff. 

Valuation  of  public  service  property, 
354ff-,362ff. 

Vinson,  Taylor,  on  interstate  trade  com- 
mission, 574 

Wages,    legislation    concerning,      139; 

contract,  434  ff. 
Wagner,  F.  A.,  184 
Waite,  Chief  Justice,  in  Granger  cases, 

22  ;   on  oil  case,  251  ff. 
Wallpaper  Trust,  264,  265 
Walworth,    Chancellor,    on    legislative 

power,  119 
Warren,  C,  137,  153 
Wealth,  tax  on,  35 


664  INDEX 

Weights    and     measures,     government  Wilgus,  H.  L.,  243 

standard,  71  Wisconsin,  regulating  stock  issues,  193; 

Welfare  legislation,  30.     See  also  Social  industrial     commission,    467;     Rail- 
justice  and  Social  reform  road  Commission,  344 

West  River  Bridge  case,  21  Women  and  children,  421,  435 

White,  Chief  Justice,  in  Standard  Oil  Workmen's    compensation    acts,     448, 

case,  251  450,  452 

Wickersham,  G,  W.,  113  Wyman,  B.,  284 


This  book  is  DUE  on  the  last  date  stamped  below 
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D      APR  5?  j>  1974 


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MAY     4 1974 
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MAY  la  mm 


WAX  2  7  1935 

JAM  8 


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